A retroactive rate reduction is a reduction in a premium rate that is applied to premiums that have already been paid. It often comes in the form of a cash refund or a certain amount of credit that can be applied to future premium payments.
Retroactive rate reductions are similar to dividends offered to policyholders by mutual insurance companies insofar as they are a way for insurance companies to provide something of value to their policyholders. This creates an incentive for people to purchase insurance policies from the company promising the retroactive reductions. After all, lower premiums can be very appealing to those shopping for insurance, even if they are only offered retroactively.
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