1. Forms
2. IL
3. IL-09-11

What the form is

The IL 09 11, titled "Supplement to Retrospective Premium Endorsement - Final Premium Computation," is an endorsement used with insurance policies that are subject to a retrospective rating plan, particularly Retrospective Rating Plan D. Its primary function is to alter the standard procedure for determining the final premium. Instead of the final premium being calculated at a fixed point after policy expiration or based on initial loss evaluations, this endorsement allows the calculation to remain open. The final adjustment and premium determination will only occur when the insurer formally requests it. This effectively means that the look-back period for losses can be extended until the insurer believes the loss development is sufficiently complete to make a final assessment.

Classes of business it applies to

This endorsement is not specific to particular industries but rather to the type of rating plan used. It applies to any commercial insured whose policy utilizes a Retrospective Rating Plan D. Such plans are typically chosen by larger businesses with significant premium volumes and a desire to have their premium more closely reflect their actual loss experience. Examples include:

• Large construction companies with long-tail liability exposures.
• Manufacturing firms with substantial workers' compensation risks.
• Companies with large commercial auto fleets.
• Any organization sophisticated enough to engage in loss-sensitive rating programs where they retain a portion of their risk.

For instance, a large general contractor on a multi-year project might use this endorsement. Claims, especially for construction defects or worker injuries, can take a long time to be reported and settled. The IL 09 11 would allow the final premium adjustment to be deferred until these long-tail claims are more fully developed, leading to a more accurate final premium.

Special considerations

The key consideration for using IL 09 11 is the agreement between the insurer and the insured to deviate from the standard final premium computation timing of the underlying Retrospective Premium Endorsement.

• Timing of Final Adjustment: The primary impact is that the final premium can remain undetermined for a longer period. This can affect budgeting and financial planning for the insured.
• Loss Development: It is particularly useful when losses are expected to develop slowly or when there's uncertainty about the ultimate cost of claims at the normal time of final adjustment.
• Agreement: Both the insurer and insured must agree to its use, as it changes a fundamental aspect of the retrospective rating process.
• Clarity: The endorsement clarifies that the premium calculation intervals are modified, and the insurer initiates the final computation.

For example, if a manufacturer has a complex products liability claim that is anticipated to take several years to resolve, using IL 09 11 would prevent a premature final premium calculation that might not accurately reflect the ultimate cost of that claim.

Key information for agents and underwriters

Agents:

• Should explain clearly to insureds how this endorsement alters the timing of the final retrospective premium calculation and its potential impact on cash flow.
• Ensure the insured understands that the final premium could be higher or lower than initial estimates and will be determined at a later, insurer-determined date.

Underwriters:

• Must assess the appropriateness of an open-ended final premium computation for the specific risk. This involves considering the nature of the insured's operations, their loss history, and the typical loss development patterns for their industry.
• The decision to use this endorsement should be based on a mutual understanding with the insured regarding the handling of long-tail claims and the desire for a more accurate, albeit delayed, final premium.
• While this endorsement itself doesn't directly impact pricing, it's a component of the overall retrospective rating plan which is priced based on expected losses, loss limitations, and other rating factors.
• It helps avoid disputes that might arise from a final premium calculation made before all significant loss information is available.