What the Form Is
The IL 09 18, Retrospective Premium Endorsement - One Year Plan - Multiple Lines, is an Insurance Services Office (ISO) interline endorsement that modifies an insurance policy to introduce a retrospective rating plan. This plan allows the final premium for the policy to be adjusted after the policy period ends, based on the insured's actual loss experience during that one-year term. It is designed to be used across multiple lines of insurance covered under the policy, such as General Liability, Commercial Auto, and Workers Compensation, allowing for a consolidated approach to risk financing.
Classes of Business It Applies To
This endorsement is typically suitable for medium to large businesses that have a significant enough premium base and a commitment to risk management to make such a loss-sensitive plan economically viable. Industries that might utilize this endorsement include:
- Large construction companies
- Manufacturing operations
- Transportation and trucking fleets
- Businesses with substantial workers' compensation exposure
For example, a manufacturing company with a strong safety program and a historically good loss record might opt for this endorsement to potentially reduce its insurance costs if losses remain low. Conversely, if losses are higher than anticipated, their premium will increase, up to a predetermined maximum.
Special Considerations
Several important factors should be considered when using the IL 09 18:
- Complexity: Retrospective rating plans are more complex than guaranteed cost programs. The insured must understand the formula's components, including the basic premium, standard premium, loss conversion factor, tax multiplier, and the agreed-upon minimum and maximum premium factors.
- Cash Flow Impact: The final premium is not determined until after the policy period, and adjustments (either additional premium due or a return premium) are made at specified intervals. This can impact the insured's budgeting and cash flow.
- Loss Control Emphasis: This plan incentivizes strong risk management and loss control efforts, as lower losses directly translate to lower premiums (down to the minimum).
- Data Requirements: Accurate and timely loss data is crucial for the calculation of the retrospective premium.
A business considering this endorsement should have stable operations and a predictable loss history to effectively evaluate the potential benefits and risks.
Key Information for Agents and Underwriters
Agents and underwriters play a critical role in implementing and managing policies with this endorsement:
- Risk Assessment: A thorough evaluation of the insured's financial stability, loss history, claims management practices, and commitment to safety is essential. The underwriter needs to be confident that the insured can handle potential upward premium adjustments.
- Parameter Setting: Selecting appropriate values for the retrospective rating formula elements (e.g., loss limits, maximum and minimum premium ratios) is crucial to structuring a plan that is fair to both the insurer and the insured.
- Explanation to Insured: Agents must clearly explain the mechanics of the retrospective rating plan, including potential premium swings and the factors influencing the final cost.
- Coverage Coordination: Ensure all lines of insurance intended to be part of the retrospective plan are correctly included and that the endorsement works harmoniously with other policy provisions.
- Monitoring: Regular monitoring of losses during the policy period can help anticipate potential premium adjustments.
Understanding the specific details of the insured's operations and their risk appetite is key to determining if the IL 09 18 is a suitable option.