Final answer:
The utilization of a limited loss table (Table M) in retrospective rating plans provides a cap on losses, helping to stabilize premiums for policyholders by establishing a maximum amount they would be responsible for in case of a claim.
Step-by-step explanation:
The utilization of a limited loss table (Table M) in retrospective rating plans affects per-occurrence limits by providing a cap on the loss amount that a policyholder would be responsible for in the event of a claim.
Essentially, the Table M limits the financial impact on the insured by establishing a maximum loss limit. When a claim exceeds the threshold outlined in Table M, the insurer absorbs the additional costs beyond that point, protecting the policyholder from the financial volatility that comes with large claims.
When a retrospective rating plan includes a limited loss table, the outcome is that the policyholder's premiums can be more predictable.
This is because the per-occurrence limit established by Table M reduces the risk that an unusually large claim will significantly increase their retroactive premium adjustment.
It provides a form of financial stability and predictability for the insured, while the insurance company takes on the excess risk.
Q: How does the utilization of a limited loss table (Table M) affect per-occurrence limits in retrospective rating plans?