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Retrospectively rated insurance is a technique of building a premium on giant industrial accounts. The ultimate premium is predicated on the insured’s actual loss expertise through the coverage time period, sometimes subject to a minimum and maximum premium, with the final premium determined by a method. Under this plan, the present year’s premium is based partially (or wholly) on the current 12 months’s losses, although the premium adjustments could take months or years beyond the current 12 months’s expiration date. The rating method is assured in the insurance contract. Formula: retrospective premium = converted loss + fundamental premium × tax multiplier. Quite a few variations of this method have been developed and are in use.
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