What is the loss ratio?
The ratio of loss is a term that is important to the insurance company. It allows insurance companies to determine the total profitability of the fuses they issue. The loss compares the amount of money that the insurance company spends on the insurance claims for the amount of money received by the insurance company through premium payments. It then calculates the total money that the company earns from the premium payments of its customers. The company then distributes the amount it pays in the receivables according to the total amount of premiums and converts the resulting number to a percentage. This percentage is the ratio of loss. For example, if the insurance company earns $ 100,000 in bonuses, while paying $ 75,000 in the area of claims, the loss ratio would be 75 percent.
It is important that Company's insurance company knows its ratio because it directly concerns the success of the company's business model. If the loss ratio is too high, the company will not earn enough profits to be successful. However, problems may occurAlso, if it is too low, as the low loss ratio can indicate that the insurance company charges excess premiums or adequately applies to customer demands.
The ideal point of balance, which is also called the permissible, target or expected loss ratio, will depend on a number of variables for the insurance company and is largely dependent on the insurance company. For example, losses between health companies can be between 60 and 110 percent. Loss of property insurance, such as cars or home insurance, are more likely to be between 40 and 60 percent.
In addition to providing insurance with an accurate measure of the relationship between their premiums and demands, the situation of loss also enables insurance companies to make very simple calculations when considering the change in bonus. To calculate this change, the company can simply divide the actual ratio of experienced ZTRads (Aer) by the target ratio to reach another percentage that indicates the corresponding rate change. For example, if AER is 40 percent and a balance point is 50 percent, then the customer's bonus should be 80 percent of its current amount, which means it should be reduced by 20 percent. However, if AER was 60 percent, then the bonus should increase by 20 percent.