Which rating usually applies an addition or reduction for the actual loss experience for past years?

• A. Experience Rating
• B. Schedule Rating
• C. Merit Rates
• D. Retrospective Rating

Answer: (A)

Experience rating adjusts the premium based on how much loss the insured actually had in prior years. It uses past loss history to determine a factor that is applied to the base premium, so, if the past losses were lower than expected, the premium is reduced; if they were higher, the premium is increased. This ties costs directly to historical risk and often uses an experience modification derived from the recent three-year loss record versus expected losses for the payroll.

The other methods don’t hinge on past loss experience in the same way: schedule rating relies on underwriting factors and safety measures rather than past losses; merit rating modifies rates for safety program involvement or other non-loss-history factors; retrospective rating calculates the final premium after the policy period based on actual losses during that period, not past years’ history applied to the current premium.