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The Benefits of Retrospective Rating Workers’ Compensation Plans

The Benefits of Retrospective Rating Workers’ Compensation PlansA retrospective rating workers’ compensation plan is a type of plan in which the premium is adjusted after the policy has expired in order to more accurately reflect the losses of the insured over the life of the policy. This designated rating program combines actual losses and graded expenses incurred during the policy period to determine the amount of the final premium. This plan is not a workers’ compensation insurance policy itself, but rather an endorsement to a policy that modifies it to include the retrospective rating formula.

While this process can be complicated, utilizing a retrospective rating workers’ compensation plan can be a valuable way for employers to control the cost of their workers’ compensation insurance policy.

The Different Types of Workers’ Compensation Retrospective Rating Plans

There are a few different types of worker’s compensation retrospective rating plans, each using different formulas to determine the amount of premiums to be paid. Here are three of the most common rating plans:

  • Tabular Plan: The tabular plan strategy uses a table to help determine what the policyholder’s premiums, relative to their level of risk. The table includes the maximum and minimum rates for the particular policy, and the underwriter then must take into account risks, discounts and other factors to arrive at a premium amount that falls between the minimum and maximum.
  • Incurred Loss Retro: Under an incurred loss retro plan, the insured pays a premium based on actual losses incurred during the policy period. The insured will pay an agreed-upon premium up front as with a guaranteed cost program, but can receive a partial refund for a favorable loss experience. This also means they can be subject to paying an additional premium after the policy has expired if the loss experience was unfavorable.
  • Paid Loss Retro: A paid loss retro, sometimes referred to as a cash flow plan, allows the insured to hold onto the cash that might otherwise be paid in premiums, and pay only the cost of the injured workers’ claims, plus an adjusting charge, as the claims are paid. This typically requires a large amount of money to be set aside by the insured in order to secure coverage.

One of the biggest benefits of all retrospective rating workers’ compensation plans is that they reward employers for having low workers’ compensation claim rates. This gives employers tangible financial motivation to focus on and promote workplace safety, without directly penalizing them for accidents. The more risk management programs an employer has in place, the more they’ll benefit from one of these plans.

About ASIA Workers’ Compensation

Associated Specialty Insurance Agency, Inc. has been “The Workers’ Compensation Specialist for Brokers and Agents” for the past two decades and is committed to providing brokers and insurance agents across the East Coast with expertise and services to develop a Workers’ Compensation policy. For more information about how we can assist you with claims management, anti-fraud measures, and more call (610) 543-5510 to speak with one of our professionals.

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