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📊 '''Retrospective rating''' is a premium-determination method in which the final cost of an [[Definition:Insurance policy | insurance policy]] is adjusted after the policy period ends, based on the [[Definition:Insured | insured's]] actual [[Definition:Loss experience | loss experience]] during that term. Unlike [[Definition:Guaranteed cost plan | guaranteed cost plans]], where the premium is fixed at inception, retrospective rating ties the policyholder's ultimate premium to the [[Definition:Claim | claims]] that actually emerge. It is most commonly found in [[Definition:Workers' compensation insurance | workers' compensation]] and [[Definition:General liability insurance | general liability]] lines, typically for large commercial accounts whose loss volume is statistically credible enough to justify experience-based pricing.

⚙️ At the start of the policy, the [[Definition:Insurance carrier | carrier]] collects a provisional or deposit premium calculated from the insured's projected [[Definition:Exposure | exposures]] and an agreed-upon rating formula. Once the policy period closes — and often again at subsequent valuation dates — the insurer recalculates the premium using actual [[Definition:Incurred losses | incurred losses]], a [[Definition:Basic premium | basic premium]] that covers fixed expenses and [[Definition:Profit margin | profit]], a [[Definition:Loss conversion factor | loss conversion factor]], and applicable [[Definition:Tax multiplier | tax multipliers]]. The formula also incorporates a minimum and maximum premium, creating a corridor that protects both parties: the insured won't pay less than the minimum regardless of how favorable losses are, and won't pay more than the maximum even if losses spike.

💡 For large organizations, retrospective rating offers a compelling middle ground between fully [[Definition:Guaranteed cost plan | guaranteed cost]] coverage and [[Definition:Self-insurance | self-insurance]]. It rewards disciplined [[Definition:Risk management | risk management]] with tangible premium savings while still transferring [[Definition:Catastrophic loss | catastrophic loss]] risk to the carrier above the maximum premium threshold. Insurers benefit by aligning the insured's financial incentives with loss control, which tends to improve overall [[Definition:Loss ratio | loss ratios]] on the book. Because the calculations can extend years beyond the original policy period — especially in [[Definition:Long-tail liability | long-tail lines]] — both parties must commit to ongoing data exchange and periodic [[Definition:Premium audit | premium audits]], making administrative rigor essential to the arrangement's success.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Retrospective rating plan]]
* [[Definition:Experience rating]]
* [[Definition:Loss-sensitive program]]
* [[Definition:Premium audit]]
* [[Definition:Guaranteed cost plan]]
* [[Definition:Large deductible plan]]
{{Div col end}}

Definition:Retrospective rating - Revision history

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