Inherent Risk Adjustment
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Question
In _________________, an adjustment is based on experience of an individual risk during the term of the policy and is generally subject to maximum and minimum premium limits specified in the policy.
Answers
Explanations
Click on the arrows to vote for the correct answer
A. B. C. D.B
The correct answer to the question is B. Retrospective premium adjustments.
Retrospective premium adjustments refer to the adjustment of premiums based on the experience of an individual risk during the term of the policy. These adjustments are made after the policy period has ended, and the insurer has had a chance to evaluate the actual losses and expenses associated with the insured risk.
Retrospective premium adjustments are commonly used in insurance policies that involve a high degree of uncertainty regarding the potential losses associated with the insured risk. For example, policies that cover workers' compensation, general liability, or property damage may include retrospective premium adjustments.
Retrospective premium adjustments are subject to maximum and minimum premium limits specified in the policy. These limits ensure that the insurer is not exposed to excessive risk or loses money on the policy. The maximum limit sets the upper bound for the amount of premium adjustment that can be made, while the minimum limit sets the lower bound.
In summary, retrospective premium adjustments are a mechanism used by insurers to adjust premiums based on the actual experience of an individual risk during the term of the policy. These adjustments are subject to maximum and minimum premium limits specified in the policy to ensure that the insurer is not exposed to excessive risk.
