Commutation provision definition
Commutation provision means a verbal or written agreement, whether or not formally incorporated into an insurance or reinsurance policy, that allows the policyholder to commute the policy, usually implying that all liabilities and rights created by that contract are extinguished in return for the balance of an experience account. Generally provisions such as "profit sharing" or "low claims bonus," which also produce a return of premium that can be reduced by claims payments, are not considered Commutation Provisions if they do not extinguish the contract. Loss-based return and additional premium provisions in conventional loss-based rating plans, e.g., incurred loss retrospectively rated insurance and so-called "retention plans" used commonly in insuring US Workers' Compensation, are generally not considered Commutation Provisions for much the same reason.
Examples of Commutation provision in a sentence
The Profit Commission provision does not apply to Retrospective Rating Plan business but the No Claims Bonus and Commutation provision does.