Loss Ratio
Key Takeaway
The ratio of claims paid by an insurer to premiums collected, expressed as a percentage. A loss ratio of 60 percent means the carrier paid sixty cents in claims for every dollar of premium collected.
Definition
The ratio of claims paid by an insurer to premiums collected, expressed as a percentage. A loss ratio of 60 percent means the carrier paid sixty cents in claims for every dollar of premium collected. Carriers use loss ratios to evaluate the profitability of their book of business and to make pricing decisions at renewal.
Why This Matters for Law Firms
Underwriting terms determine what you pay for coverage and what terms you receive. Law firms that understand the underwriting process can present their risk profile more effectively, negotiate better terms, and avoid surprises at renewal. This knowledge is particularly valuable when shopping for new coverage or responding to carrier questions.
Example Usage in Context
A firm preparing for its annual insurance renewal might encounter this in the carrier's proposal: "The underwriter has adjusted our loss ratio based on our claims history. Let's discuss with our broker whether we can improve this at our next renewal."
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