Which rating system allows for premiums based on the actual loss experience during a specified period?

The retrospective rating system is designed to allow premiums to be adjusted based on the actual loss experience of an insured during a specified period, typically one policy year. This means that the ultimate premium will fluctuate in relation to the actual losses incurred, providing a more tailored approach to premium pricing.

In this system, a preliminary premium is established, but it can be adjusted at the end of the policy period, depending on the losses that the insured has experienced. If the insured experiences fewer losses than average, they may be able to benefit from a lower final premium, whereas higher losses may lead to an increase in premium. This aligns the insured's costs directly with their risk, encouraging safety and loss prevention practices.

Other rating systems do not allow for the same level of customization based on actual loss experiences. For instance, class rating utilizes a set rate that applies to all individuals within a specific group or class, regardless of individual loss history. Schedule merit rating adjusts premiums based on specific characteristics or the nature of the risk but does not factor in past loss experience. Experience rating also adjusts premiums based on past losses, but it does so in a way that generally reflects historical loss experience rather than adjusting based on losses incurred during the policy period as in retrospective rating.