A factor used in retrospective premium calculations. It is a percentage of the standard premium and is used to provide the insurer with up-front money for administrative expenses.
The Basic Premium Ratio, a percentage, is generally found in the retro manual of the plan being used. Retrospective plans, otherwise known as retros, are claim sensitive workers compensation rating programs specifically designed and used when an employer is of the size required to justify its use. They are available for use by an employer either individually or possibly through groups. As a side note, the general performance of retro plans shows that group retros tend to perform at a more satisfactory level than individual plans.
The workers compensation term basic premium is most generally used in the context of retro plans. Conversely, the term basic premium is rarely used when analyzing a standard workers comp policy because the premium computation of a standard work comp policy does not use the same or similar formula criteria. Be sure to review our definition and information on retro plans found on our website.
So as a quick review, the basic premium is a term commonly used in the rating process of a retrospective rating plan. You will find that in fact it is a percentage of the standard premium and the rules surrounding its use can be found in the retro rating manual. The function is to provide the retro insurance company funds to cover the administration of the retro plan and all of its features as supplied for use to the client.