Final Answer:
The method of premium computation that relates an employer's losses, payroll, and premiums to the rating bureau's classifications of operations is C. Retrospective rating.
Step-by-step explanation:
Retrospective rating is a method that adjusts insurance premiums based on the actual loss experience of an employer. In this approach, the premiums are initially set using manual rating, which involves applying predetermined rates to the employer's payroll and operations as classified by the rating bureau. However, the final premium is then retrospectively adjusted based on the employer's actual loss experience during the policy period.
To elaborate, the retrospective rating formula typically includes three main components: the standard premium (calculated using manual rates and classifications), the actual losses incurred by the employer during the policy period, and a credibility factor that determines the weight given to the actual loss experience. The formula can be expressed as follows:
This method aligns the premium more closely with the employer's unique risk profile and encourages safety measures to minimize losses. Retrospective rating provides a dynamic and responsive approach to premium computation, reflecting the real-world experience of the insured and fostering a proactive risk management strategy.
So the correct option is C. Retrospective rating.