Prospective Rating

What Does Prospective Rating Mean?

Insuranceopedia Explains Prospective Rating

Prospectively rated groups use a portion or all of their claims history to determine premium rates. Renewal rates for insurance policies are set by reviewing historical claims experience, with the established rate applied and adjusted for future policy periods.

For example, if a group is large enough and has had coverage for an extended period, the insurance company will base future premium rates on the group’s claims experience. Experience rating is applied to groups with 20 or more members. Larger groups often benefit from this arrangement, as they tend to pay lower premium rates than smaller groups. Smaller groups, on the other hand, are often subject to blended rates that incorporate the manual rates set by the insurance company