Adjustable Policy
The term adjustable policy refers to insurance policies where the actual extent of the risk cannot be calculated with reasonable accuracy in advance. It is usually applicable to goods in transit insurance. In these cases the client is charged a provisional premium and this premium is adjusted at the end of the insurance period, after reviewing the actual risk that was carried by the insurance company.
Adjustable policies are used where insurance companies cannot possibly make an accurate assumption of the risk they are going to carry, as the object of the risk is not a constant. As an example: – where an insurance company insures a car they know exactly what item they are dealing with, when they insure stock held in a business the stock levels are subject to constant change.
An adjustment premium is the term used for the additional premium charged after the retrospective experience rating is applied. Retrospective experience refers to the actual claims made during the specific period covered by the insurance.
The following risks are also usually classified as adjustable exposures and therefore covered under an adjustable policy: sales, payroll, numbers of items held in inventory and cost of contracts. At the time of audit these are reviewed and a premium adjustment made if necessary. This is usually done at the financial year end where the total exposure for the year can be taken into account when calculating the insurance premium.