What Does Retrospective Premium Mean?
A retrospective premium is a payment made by a policyholder to an insurance company that is not based on a fixed amount but, rather, on the claims made during a policy period. The policyholder, however, still makes an initial payment to the insurance company prior to paying the retrospective premium.
Insuranceopedia Explains Retrospective Premium
Big, stable companies that can predict losses during a fiscal year are usually the clients who pay through this kind of premium program. A retrospective plan often covers multiple risks. A company might get a retrospective policy that will cover a number of them, including workers compensation, property damage, and liability. The losses might be predictable but they should not be so severe as to challenge the stability of the policyholder's business.
The policyholder with a retrospective premium plan pays an initial payment to the insurance company. They then file claims during the policy period for covered losses. Those claims, however, have a maximum and minimum amount. At the end of the policy period, the insurance company will charge the policyholder a final premium, based on the claims that were during the policy period and whether those claims reached those minimum and maximum thresholds.