Retrospective Rating Plans

Workers Compensation Insurance

Retrospective Rating Plans (“Retros”) determine the ultimate premium after the policy expires, or retrospectively. These are not Guaranteed Cost plans since the ultimate premium is determined by the individual insured's loss experience. Retro plans are a simple loss-sensitive alternative to a Guaranteed Cost plan for accounts paying between $150,000 to $500,000 in premium.

The final premium in a Retro is determined based on the actual losses of the policyholder. These plans typically don’t require collateral or a letter of credit for future losses. In a Retro plan, the carrier issues the policy at a rate per payroll and determines an estimated policy premium. The insured pays the policy premium during the policy year. Approximately six months after expiration and annually thereafter, a calculation is made to determine the Retro premium. The Retro premium is subject to a “minimum” (the premium that is the lowest possible regardless of losses) and a “maximum” (the most the insured could possibly pay). The Retro premium is compared to the policy premium and the insured either receives a return or additional premium.

For accounts that take an active role in controlling losses, the premium ultimately charged in a Retro can be significantly lower than a guaranteed cost alternative. The ability to predict losses accurately and reasonably is an important consideration in determining what factors work best for your exposures and your experience. All of the factors — basic, minimum, maximum, and loss — can be varied to match any insured’s particular situation.