Most premiums are set before the coverage period begins. Prospective rating determines the premium using expected future losses and expenses, based on historical experience adjusted for trend and development, rather than on the actual losses that emerge during the policy period.

Class rates, experience-rated modifications, and judgment rates are all typically prospective. The insurer commits to a price in advance and bears the risk that actual losses will exceed the expectation. Retrospective rating, by contrast, adjusts the final premium after the period based on actual losses.

Prospective rating gives the insured budget certainty and simplifies administration. It requires reliable data and actuarial judgment to avoid systematic under- or over-pricing. Rate reviews at renewal incorporate the latest experience so that successive prospective rates stay aligned with emerging costs.

• Premium set in advance based on expected costs
• Contrasts with retrospective adjustment
• Provides budget certainty for the insured
• Relies on trended historical experience