Explanation of an Insurance Loss Ratio

Insurance loss ratio is the loss to the insurance company for claims that were paid out, divided by the premiums paid by those insured. Some insurance companies post loss ratios on company websites for current and previous years. It is a good idea to review what the loss ratio is for the type of insurance you want to purchase.

Loss Ratio for Insurance Companies

A high loss ratio suggests that an insurance company has too many clients filing claims. It is in the insurance company’s best interest to limit the amount of claims paid. They will assess this number to determine whether they need to make adjustments, such as more stringent requirements for applicants, or raising insurance rates.

Loss Ratio for the Insured

It’s in the insuree’s best interest for a company to have a high loss ratio, because there’s a good chance that they’ll be successfully in receiving payouts. Some companies are notorious for doing everything possible to not pay their insured, and the insurance loss ratio is a good indicator of that.

If a company doesn’t make the loss ratio available on the website, they may give the number of claims filed and the premiums paid annually. Use the annual amounts to figure it out by dividing the claims by the premiums paid.