Final answer:
The question refers to the retrospective rating in workers' compensation insurance where the NCCI files retrospective pure premium development factors to adjust premiums based on the actual loss experience. This is mainly used by larger policies in loss cost states and helps in precise premium determination.
Step-by-step explanation:
The question pertains to a practice known as retrospective rating in the context of workers' compensation insurance. The National Council on Compensation Insurance (NCCI) is mentioned, which is a U.S.-based organization that collects data, analyzes industry trends, and provides recommendations for workers' compensation insurance rates. In loss cost states, insurance companies use loss costs, which are essentially base rates before expenses, profits, and contingencies are factored in, as a starting point to determine the final premium rates.
The NCCI files retrospective pure premium development factors as a part of this process. These factors help in adjusting the premiums based on the actual loss experience of a policy, meaning if the losses are higher or lower than expected, the premium can be adjusted accordingly, after the policy period has ended. This is called a retrospective rating plan and is mainly used for larger policies where the risk is high enough to warrant such adjustments.
Retrospective rating is designed to provide an incentive for loss prevention and allows for more precise premium determination based on the insured's own loss experience. Understanding retrospective rating is important for businesses, especially those with significant workers' compensation exposure, as it can significantly impact their insurance costs.
The complete question is: In loss cost states the NCCI files retrospective pure premium development factors is: