insurance company technique to determine the correct price of a policy premium. The company analyzes past loss experience for others in the insured group to project future claims. The premium is then set at a rate high enough to cover those potential claims and still earn a profit for the insurance company.
insurance company technique to determine the correct price of a policy premium. The company analyzes past loss experience for others in the insured group to project future claims. The premium is then set at a rate high enough to cover those potential claims and still earn a profit for the insurance company. For example, life insurance companies charge higher premiums to smokers than to non-smokers because smokers' experience rating is higher, meaning their chance of dying is much higher.
statistical procedure used to calculate a premium rate based on the loss experience of an insured group. Applied in group insurance, it is the opposite of manual rates. Here the premiums paid are related to actual claims and expense experience expected for that specific group. In prospective rating, the past three years loss experience of the insured is the basis for the premium calculation for the current year of coverage. In retrospective rating, the current premium rate for the current period of time is modified at the close of that period to reflect actual loss experience. The premium actually paid then can be adjusted, subject to a pre-agreed minimum and maximum rate.
