Loss ratio

The ratio of losses paid or accrued by an issurer to premiums collected over a year.

Loss Ratio

In insurance, the ratio of what an insurance company pays in benefits and associated expenses (such as adjustments) to what is collected in premiums, expressed as a percentage. It is calculated thusly:

Loss ratio = (Benefits paid out + Adjustment expenses) / Premiums collected

For example, if a company pays out $8,000,000 in benefits and adjustment and collects $10,000,000 in premiums, its loss ratio is 80%. Traditionally, the loss ratio has been used as a gauge for both an insurance company's financial health and whether it was overcharging policy holders. For example, a high loss ratio indicated that the company was not making a reasonable profit, while a low ratio showed that it was either charging too much or covering too little. However, this view has been criticized, at least in relation to health insurance, on the grounds that the integration of insurers and providers makes it difficult or impossible to calculate the ratio properly.

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References in periodicals archive

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The federal medical loss ratio: a permissible federal regulation or an encroachment on state power?

The state also expressed concern that if other New England states offered individual plans subject to lower medical loss ratios, it could further destabilize New Hampshire's market by driving business across the border.

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For employers with employees in more than one state, the applicable medical loss ratio will be determined based on the state where the policy was issued or delivered as stated in the contract.

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"They're saying that the premium charge ought to be more in line with what the loss ratio is," Gay said.

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But CMS officials said they are concerned that managed care plans are not properly accounting for "spread pricing" in their medical loss ratio calculations.

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"If the current market premium and claims dynamics continue through the year the group loss ratio would be expected to move towards the higher end of the 75% to 79% target range," added the company.

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He said the current loss ratio and burden on general pubic are unacceptable and all possible measures should be taken to curb these losses.

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This, they contend, gives the false impression that their loss ratios are stronger than they really are, which some insurance departments consider a justification to approve rate increases smaller than would be supported by a lifetime loss ratio methodology and far smaller than actually needed.

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