What is a combined ratio?

Combined ratios are one of the tools used to determine the profitability of the insurance company. In principle, the ratio is calculated by determining the amount of losses incurred, adding the amount of the costs incurred by companies and the division of this combined amount earned by the premium generated in the same period. The profitable insurance company will constantly show a combined ratio equal to or below 100%.

The use of a combined ratio to monitor the performance of the company is very important. In order to remain profitable and to provide customer services, the insurance company must be able to receive more premiums from premiums than it is paid. While premiums are usually only one source of income for the insurance company, it is often the main source of income. To ensure that the flow flow exceeds the expenditure, it results in a stable company that will be for a long time.

Customers are also interested in the combined ratio of their insurance carriers, as the ratio reflects the financial health of the provider. If, in case,that the insurance company is constantly experiencing a combined A ratio equal to or more than 100%is a strong indication that the provider will have to make a certain adjustment to remain in operation. This may include a reduction in customer support support services or an increase in premiums to get this difference. In both cases, the degree of customer satisfaction is influenced. In the worst case, the customer finds that the payment of claims is slowing down considerably and that the ability to obtain answers to covering coverage takes longer.

Many insurance companies decide to calculate the combined ratio at least quarterly. In some cases, the Provider may decide to calculate the ratio monthly. This is because the combined ratio can also information about the current level of success in writing new policies and how effective the current sales techniques in the market sector are.