Which rating mechanism adjusts premiums based on actual losses after a policy period?

Prepare for the Certified Authority of Workers Compensation (CAWC) Exam with multiple choice questions and in-depth content. Each question comes with detailed explanations and helpful hints to ensure you are ready for your certification.

Multiple Choice

Which rating mechanism adjusts premiums based on actual losses after a policy period?

A retrospective rating plan adjusts premiums after the policy period based on actual losses. In this approach, the insured often pays an initial deposit premium, and the final cost is determined later using a formula tied to the losses that occur during the term. If losses come in lower than expected, the premium can be reduced; if losses are higher, the premium increases (within stated maximums/minimums). This method aligns cost with actual risk and smooths premium volatility by tying the final price to what actually happened.

This differs from a guaranteed cost approach, where the premium is fixed for the policy period regardless of losses. Assigned risk/residual market and state fund mechanisms address access to coverage and funding but do not revolve around adjusting the premium after losses are known in the same loss-based way.

Which rating mechanism adjusts premiums based on actual losses after a policy period?

Prepare for the Certified Authority of Workers Compensation (CAWC) Exam with multiple choice questions and in-depth content. Each question comes with detailed explanations and helpful hints to ensure you are ready for your certification.

Which rating mechanism adjusts premiums based on actual losses after a policy period?

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