Difference b/w retrospective rating and experience rating

keshav1996

Hi Graham,

I am quit confused about the difference b/w the two as both as insured's actual experience only. Kindly explain.

Graham

Hi Keshav,

Both use the insured's loss experience but they do so in different ways:

• With experience rating, the insured's past experience is used as input to the rating process. They are then charged a rate prior to coverage beginning and this rate is not adjusted.
• With retrospective rating, the insured's past experience is used to come up with an initial premium rate but the insured's loss experience during the coverage period may then be used to adjust the initial rate up or down. If the loss experience is worse than expected during first few months of coverage, the insured may be issued a partial refund. Similarly, if the loss experience is worse than expected the insured may incur additional charges.

keshav1996

Thank you Graham. That's a clear enough explanation.