Which rating method adjusts the premium based on actual loss experience from past years?

Which rating method adjusts the premium based on actual loss experience from past years?

• A. Experience Rating
• B. Merit Rates
• C. Schedule Rating
• D. Retrospective Rating

Answer: (A)

Experience rating adjusts the premium based on actual loss experience from past years. It uses an experience modification factor that reflects how the insured’s prior losses compare to expected losses for their exposure. A favorable loss history lowers the factor and reduces the premium, while a poorer loss history raises the factor and the premium, making the price more closely match the insured’s overall risk. Merit rating, on the other hand, is based on the insured’s safety programs, training, and management practices rather than directly on past losses. Schedule rating applies underwriter-adjusted factors for specific risk characteristics listed in a rating plan, not primarily tied to historical losses. Retrospective rating ties the final premium to actual losses that occur during the policy period, so it’s based on losses incurred in the current term, not past years’ experience used to set the initial price.

Experience rating adjusts the premium based on actual loss experience from past years. It uses an experience modification factor that reflects how the insured’s prior losses compare to expected losses for their exposure. A favorable loss history lowers the factor and reduces the premium, while a poorer loss history raises the factor and the premium, making the price more closely match the insured’s overall risk.

Merit rating, on the other hand, is based on the insured’s safety programs, training, and management practices rather than directly on past losses. Schedule rating applies underwriter-adjusted factors for specific risk characteristics listed in a rating plan, not primarily tied to historical losses. Retrospective rating ties the final premium to actual losses that occur during the policy period, so it’s based on losses incurred in the current term, not past years’ experience used to set the initial price.