Retrospective rating is based on what during the current policy period?

Retrospective rating is a financial method used in insurance where the premium is determined based on the actual losses incurred during the policy period. This approach allows businesses to have a premium that reflects their actual risk experience rather than relying solely on estimated risks or average claims. In essence, if a business experiences lower losses than anticipated, it may enjoy a lower premium, whereas higher losses will lead to a higher premium.

This system encourages employers to invest in safety and loss control measures since more favorable loss experiences directly influence their premiums. It effectively ties the cost of insurance to actual performance over the policy period, making it a fairer approach for businesses since their premiums are adjusted according to real-world outcomes.