Which rating usually adjusts the premium for losses in the same policy year?

Which rating usually adjusts the premium for losses in the same policy year?

• A. Retrospective Rating
• B. Experience Rating
• C. Merit Rates
• D. Schedule Rating

Answer: (A)

Retrospective rating ties the final premium to the losses incurred during the policy year. Under this approach, you start with a base premium, and the actual amount due is adjusted up or down after the policy year ends based on the losses that occurred, within agreed minimums and maximums. This means the premium reflects what happened in the same year, rather than relying on past years’ loss history or on factors unrelated to actual claims. By contrast, experience rating uses prior loss history to set premiums for a future year, merit rating applies general risk factors, and schedule rating adjusts for specific characteristics of the risk; none of those tie the final cost directly to losses within the current policy year.

Retrospective rating ties the final premium to the losses incurred during the policy year. Under this approach, you start with a base premium, and the actual amount due is adjusted up or down after the policy year ends based on the losses that occurred, within agreed minimums and maximums. This means the premium reflects what happened in the same year, rather than relying on past years’ loss history or on factors unrelated to actual claims. By contrast, experience rating uses prior loss history to set premiums for a future year, merit rating applies general risk factors, and schedule rating adjusts for specific characteristics of the risk; none of those tie the final cost directly to losses within the current policy year.