Which term best describes traditional workers' compensation expense where premiums are set before the period and do not vary with actual losses?

• A. Guaranteed cost
• B. Large deductible program
• C. Retrospective rating plan
• D. Self-insurance

Answer: (A)

Pricing that means the premium is set before the period and does not change with actual losses is called guaranteed cost. This approach gives the employer a predictable, fixed cost for coverage, since the premium is paid regardless of how many or how costly claims turn out to be. The insurer assumes the volatility of losses in this setup, underwriters price the policy to cover expected claims, and there’s less financial fluctuation for budgeting.

In contrast, other structures are loss-sensitive. A large deductible program lowers the fixed premium but shifts more of the cost to the employer once claims occur, since the employer pays losses up to a high deductible. A retrospective rating plan adjusts the premium after the period based on actual losses, so total costs aren’t known until claims experience is settled. Self-insurance means the employer funds and manages all losses directly, with no insurance premium determined upfront.