Washington State Insurance Practice Exam

Which of the following is a self-rating plan where actual losses determine the final premium?

1. Class Rating

2. Experience Rating

3. Judgment Rating

4. Retrospective Rating

The correct answer is: Retrospective Rating

Retrospective Rating is a self-rating plan where the final premium is determined by the insured's actual losses. This plan involves an initial deposit premium, which is adjusted at the end of the policy period based on the actual loss experience of the insured. This allows for a more accurate reflection of the risk presented by the insured, as the premium is adjusted based on the actual claims incurred during the policy term. The other options: A. Class Rating: Involves all insureds within a similar classification being charged the same rate, regardless of individual loss experience. B. Experience Rating: Involves adjusting the premium based on the individual loss experience of the insured, but it is not as directly tied to actual losses as retrospective rating. C. Judgment Rating: Involves the insurer using underwriting judgment to determine the appropriate premium for the insured, rather than relying on a predetermined formula based on loss experience.