Calculating the value of the premium: retro rated policies
This is also known as retrospective rating and refers to policies where the final premium paid by the insured is determined at the end of the period of cover, to take into account changes to the risk that is being insured. For example, retro rated policies are often written to cover employer’s liability risks. At the start of the period, the insured may pay an estimated premium based on the last year’s staffing level. The premium is then adjusted at the year end to take account of the actual number of staff employed and the level of claims etc.