Using a simplified definition, a retrospective rating plan (retro) is a pricing plan obtainable in which your workers compensation fees are developed, in its final form, by the losses sustained throughout the policy period.
First let’s go over the constituents of a retro:
Maximum Premium: This factor Pennsylvania Workers Compensation Insurance the percentage in addition to the standard premium, which may be collected in case of adverse loss performance throughout the policy period. Example: A $50,000 policy having a 1.25 (125%) maximum may potentially be billed $62,500 should you have had a high claims amount. This factor is part of the negotiating your agent must do for you. It’s subjective and hangs through the underwriter.
Minimum Premium: This factor represents the ultimate return to the insured in the event you had no losses. Example: The same $50,000 policy having a.60 (60%) minimum premium would pay only $30,000 in premium should you have had no losses. This factor is within direct correlation using the maximum. The larger the maximum, the lower the minimum and vice versa. In other words, take more risk get more reward, take less risk get less reward.
Loss Conversion Pennsylvania Workers Compensation Insurance:
This factor Pennsylvania Workers Compensation Insurance represents the cost the insurer will charge you to manage the claims you incur. Example: The retro is issued having a 1.10 (10%) loss conversion factor and also you incur a $10,000 claim. The insurance carrier will calculate this claim as $11,000 ($10,000 x 1.10 = $11,000). This factor is also negotiable and set through the underwriter. This factor includes a direct correlation with the minimum. The higher the loss conversation factors the low the minimum premium and vice versa.
Tax Multiplier: Because retro’s deviate from the standard policy pricing, that has the premium taxes the insurance company pays included in the premium the tax multiplier is shown separately around the retro. This factor is set by the state and is not negotiable.