Which plan adjusts the premium for the current policy period to recognize the insured's actual losses during that period?

Which plan adjusts the premium for the current policy period to recognize the insured's actual losses during that period?

• A. Retrospective rating plan
• B. Experience rating plan
• C. Guaranteed cost plan
• D. Schedule rating plan

Answer: (A)

Retrospective rating plans tie the final premium for the current policy period to the insured’s actual losses during that period. An initial deposit or minimum premium is paid, and after the period ends, the insurer calculates a retrospective premium based on the losses incurred, often with minimum and maximum limits. This design aligns the cost with actual loss experience while giving the insured a strong incentive to maintain losses low during the term. Experience rating uses prior loss history to set rates for future periods, not to adjust the current period’s premium. Guaranteed cost plans provide a fixed premium regardless of actual losses. Schedule rating adjusts the premium using credits or debits for insured characteristics or loss-control features, rather than tying the final price to losses incurred in the current period.

Retrospective rating plans tie the final premium for the current policy period to the insured’s actual losses during that period. An initial deposit or minimum premium is paid, and after the period ends, the insurer calculates a retrospective premium based on the losses incurred, often with minimum and maximum limits. This design aligns the cost with actual loss experience while giving the insured a strong incentive to maintain losses low during the term.

Experience rating uses prior loss history to set rates for future periods, not to adjust the current period’s premium. Guaranteed cost plans provide a fixed premium regardless of actual losses. Schedule rating adjusts the premium using credits or debits for insured characteristics or loss-control features, rather than tying the final price to losses incurred in the current period.