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Retrospective Rating

What Does Retrospective Rating Mean?

Retrospective rating is the practice of changing an initial premium based on actual losses incurred. The initial premium for a retrospectively rated policy is given based on an estimate, with the agreement that it will subsequently be adjusted based on the losses experienced during the policy period.

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Insuranceopedia Explains Retrospective Rating

The formulae used in retrospective rating calculations are specific to individual companies. They must, however, be filed with the State Department of Insurance.

If a company calculates premiums according to a formula that has not been approved by the government, the insurance provider must then recalculate the premium according to the official guidelines of the state-specific rating organization (whether the NCCI or the local State Rating Bureau). The insurer is then obligated to offer the correct premium, based on the approved formula.

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