What Is A Loss Ratio?
A loss ratio in insurance is basically a percent of claims that were claimed within a year.
The amount can be based on a dollar amount in claims.
Really the formula is:
(Claims paid + any adjustments) / (total premium earned) x 100 = loss ratio
Insurance Agents and Loss Ratios
Insurance carriers will keep track of entire insurance brokerage’s loss ratios and the insurance brokerages keep individual track of other insurance agents within their brokerages. Some brokerages do not keep very close attention but they can tell when claims are filed and can keep a rough estimate by monitoring.
It has been said that sometimes incentives can be given to insurance brokerages when loss ratios are below a standard percent for a year.
Insurance Carriers and Loss Ratios
Insurance carriers pay pretty close attention to their loss ratios because if they did not they could face going out of business.
Insurance carriers keep track of loss ratios for brokerages and individuals because they want to know if an agent tends to write business that tends to file a lot of claims. Questions can be raised on how insurance agents are finding their business or how they are educating their clients or saying anything to get money from claims. Insurance fraud is serious.