Retrospective Premiums: The Law Favors The Policyholder

Insurance policies, particularly workers
compensation insurance policies, frequently
require the policyholder to pay additional
premiums based upon the insurance companies’
outlay to claimants. Many of the policies base these
additional or retrospective premiums on reserves,
the amount the insurance company estimates in
advance that will ultimately be paid to the
claimant. The insurance company thus has the use
of the policyholder’s money for the years the claim
is pending. Such insurance policies are called “loss
sensitive” and have “retrospective premium
adjustments.” These adjustments can be made on
a “paid loss” basis or on an “incurred loss”
(reserve) basis. The focus of this article is on the
incurred loss retrospective premium.