What is the definition of Loss Ratio?
The Loss Ratio refers to the portion or percentage of the premiums that are used to pay for claims. Included in the expense loading are the expenses involved in verifying, appraising and paying for the claim.
For example, if an auto insurance policy paid $100 in premiums and made a claim of $80, then the loss ratio for that policy is 80%.
The usual loss ratios for property and casualty insurance ranges from 40 to 60%, while health insurance loss ratios are from 60 to 110%. High loss ratios would mean that the insurance company is not making money on the policies or lines, or may be even servicing these policies or lines at a loss. If the loss ratios, meanwhile, are overly low, this might mean that the insurance company is charging overly high premiums.
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