Blog Reader Question - About Retro Policies

A Great Question From One of Our Blog Readers - My company has a 5-year Retro policy. For 3 years of our Workers Comp policy, the rates seemed reasonable. Now, our premiums have skyrocketed. How could this have happened when the premiums were very reasonable the first few years?

A Retro is a hybrid type of a Loss Sensitive policy. The main term to consider is LOSS SENSITIVE, which means if the reserves are increased by more than a small amount, the premiums will increase exponentially.

In the Retro policies we have reviewed, there seems to be a trend that the reserves on the open files increased sharply over a short amount of time later in the life of the Workers Comp files. The look-back period is so much longer in a five year retro when compared to a regular Workers Comp claim.

Retro policies have to be followed very closely as the reserves have much more of an effect on premiums. Unspent reserves can be very detrimental to your current and future Workers Comp policies. Online access to your claims is critical. Almost all carriers will allow access to the claims files on at least a limited basis. We recommend online claims access whether or not the policy is a retro. Reviewing the reserves on the loss runs even quarterly may not be often enough to keep the reserves in check.

We recommend an agreement in the policy where you are notified by email if there is an increase in any of your Workers Comp files over a certain amount such as $5,000. This will cut out any surprises at renewal. Trying to negotiate file reserves at the time of policy renewal is an exercise in futility.