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.
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.
