What is loss ratio?
Technically, loss ratio means incurred claims divided by earned premium. More simply, loss ratio is the percentage of total claim payments paid out of total premiums collected for an insurance product or insurance line of business. For example, if an insurance company collected $1,000,000 of premium for credit life insurance and paid $500,000 in credit life insurance claims, then the loss ratio would be 50%. It’s important to note that references to loss ratio pertain to the aggregate experience for a product line during a defined period of time. Also, loss ratios will fluctuate from one period of measurement to another because the actual number of claims and amount of claim payments cannot be precisely predicted or controlled. Regardless of product line loss ratio experience, the insured borrower will get 100% of the promised insurance policy benefit for which premium has been paid. It’s equally important to cautiously note the limitations of loss ratio as a measurement tool. Loss rat
