Transitioning from Fixed Cost to Loss Sensitive: Retrospective Rating Plans are a Great Option
White Paper Summary
Retrospective (Retro) rating insurance plans can have many advantages for employers. They are a hybrid risk financing plan in which an organization buys insurance subject to a rating formula that adjusts the premium after the end of the policy period based on the insured organization’s actual losses during the policy period. Employers should consider state eligibility requirements, premium size and risk tolerance when contemplating the move to a retro. The majority of states require $100,000 in countrywide premium to be eligible for a “statutory” retro program. However, some states do offer a Large Risk Loss Rating Option (LRARO) which allows the insurer the flexibility to negotiate the retro terms to find a solution that fits the insured’s budget and risk tolerance. Below we will identify the components that make up a retro rating plan as well as the benefits of having this type of plan.
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