Discover the Benefits of Retrospective Rating Plans for Small Businesses
At first glance, retrospective rating plans may seem complicated and difficult to implement. However, for small businesses looking to lower their insurance costs and increase coverage, they can be a great option. Retrospective rating plans are based on the actual experience of a business’s claims frequency and severity and provide an incentive for businesses to practice risk management with potential discounts if certain criteria are met.
Retrospective rating plans typically begin with an Agreed Price Plan (APP) in which premiums are set using broad industry categories instead of relying solely on past losses of the business being insured. From there, depending on actual loss experience—the business’s total direct incurred losses over a policy period—a “crediting” or “debiting” system applies bonuses or surcharges to adjust the previously agreed upon premium rate.
In essence, retrospective rating plans act as refunds and rewards programs that provide incentives for businesses to take preventive measures to reduce their own exposures such as safety training programs or improving premises security. If losses are lower than expected under the plan, then credits are earned toward what was initially paid for the policy; conversely, debits must be paid if losses exceed expectations under the plan.
Retrospective Rating Plans can be very advantageous for small businesses because it allows them to pool their losses together and thereby spread out costs across larger groups. This is especially helpful for high-risk industries where individual insurers often charge high rates due to their belief that any one member could incur catastrophic claims during a year. By spreading out these costs across multiple companies through retrospective rating plans, small business owners get to pay less overall while still maintaining relatively robust coverage limits.
When selecting a plan provider, businesses should consider factors including price stability over time and flexibility in adjusting premiums in response to changing conditions without sacrificing coverage options. Make sure you have clearly defined performance goals before signing up so you know exactly what kind of savings you will be getting when your claims come in below expectations at year-end review time. Retrospective rating plans offer a great way for small businesses to lower their insurance costs while increasing their coverage levels—just make sure you do your homework first!