Retrospective Rating and Your Workers Compensation Program
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Retrospective Rating plans, or Retro, is another type of loss sensitive workers compensation program available in the marketplace. Similar to a Guaranteed Cost program, which was featured last month, the initial premium is based on payroll, specific classification codes and premium rates per $100 of payroll. The key difference between the two plans, however, is that the final premium on a Retro takes into account the actual claims experience of the insured. For staffing firms that generate over $350,000 in annual workers compensation premiums and have good claims experience, this can be agreat alternative to a traditional Guaranteed Cost plan. The plan places more weight on actual loss experience and rewardsinsureds that havegood risk management programs in place.
At the onset of the policy, the carrier will decide what the annualized premium will be based on similar factors used in a Guaranteed Cost plan. In addition, the carrier will use a specific mathematical formula to determine what the final Retro premium will be based on actual losses the insured experiences during the policy year. The formula is applied once the policy term is over hence the name Retrospective. If claims are lower than originally anticipated, a return Retro premium or refund will be issued back to the staffing firm (subject to a minimum premium amount). If claims are higher than originally anticipated, the insured will be required to pay the carrier an additional Retro premium (subject to a maximum premium amount).
It is important to remember that the plan is designed to have a minimum and maximum premium. At a minimum, the carrier will be able to cover the administrative costs related to servicing the policy. At a maximum, the insured will be able to limit or cap the amount the carrier can collect under the policy should claims experience become very adverse.
- Good claims experience is rewarded by a reduction in ultimate premiums paid.
- Usually little to no collateral is required compared to other loss sensitive plans.
- Workers compensation risk is defined by a minimum and maximum premium.
- Cash flow is not as favorable as a large deductible program.
- Claim services cannot be unbundled to a third party administrator.
- If the Insured experiences adverse loss experience, they are required to pay the carrier additional premium (again, subject to a maximum or capped amount).
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