Washington State Insurance Practice Exam

What dictates the final premium in retrospective rating?

1. Actual losses during the policy period

2. Class of the insured

3. Credible statistics availability

4. Schedule of charges and credits

The correct answer is: Actual losses during the policy period

In retrospective rating, the final premium is determined by the actual losses that occur during the policy period. This means that the premium is based on the actual claims and losses made by the insured, rather than estimates or statistical models. The other options are incorrect for different reasons - Class of the insured (option B) may affect the initial premium for an insurance policy, but it does not dictate the final premium in retrospective rating. - Credible statistics availability (option C) is important in determining the expected losses for a certain class of insured, but it does not directly determine the final premium in retrospective rating. - The schedule of charges and credits (option D) may be used to adjust the final premium, but it is not the main factor in determining the final premium in retrospective rating.