This article originally appeared in Anderson Kill's Policyholder Advisor (January/February 2009).
Retrospective premium insurance policies, or “retrospectively-rated” policies, may, at first blush, appeal to the cost-conscious risk manager or executive. The selling point is simple, yet patently attractive: the total premiums paid are determined by the amount of loss incurred by the policyholder and actual claim payments made by the insurance company. Thus, the risk manager with effective and proven loss control procedures and a low loss history could reasonably anticipate paying lower premiums than when purchasing a traditional, fixed-premium policy. Despite the curb appeal of these policies, however, policyholders must have their eyes open in advance of purchase and claims submission to appreciate the myriad issues and claims handling tactics that could result in dramatically increased premiums.