How Does Loss Ratio Affect Business Insurance Premiums?

When you are in the process of buying business insurance, a commercial lines insurer will use a variety of different factors to calculate your premiums based on the risks that you present. From the number of years that you have been in business to the classification of your operations, the rates that you pay are based on a combination of factors that can all either increase or decrease the likelihood that you will file a claim. One of the common factors that is used by commercial insurance companies in San Diego is referred to as loss ratio.

What Does the Industry Term Loss Ratio Mean?

Understanding the idea behind loss ratio is very important when you are buying coverage. An insurance company is in business to earn money, and the more likely that you are to file a claim that costs them money, the more money you will pay. Technically speaking, the industry term loss ratio is calculated by taking the total losses in claims and adding expenses and then dividing this figure by the total premiums earned by the company.

For example: A carrier collects $1000 in premiums and pays $800 total in claims and expenses. This means that you have a 80 percent loss ratio, which means that the premiums are sufficient to cover claims paid. If the ratio is over 100 percent, it is a recipe for financial disaster and the company will be forced to raise your premiums in a short period of time to recoup because the only way that they can earn a profit is through investment income.

If you want to control the cost of your San Diego insurance premiums, the best thing that you can do is be proactive in your efforts to prevent losses before they happen. By preventing losses and exploring other risk management strategies, you can keep your loss ratio and your premiums low.

For more information about commercial insurance for your business, visit our website at www.americantristarinsurance.com or contact an expert insurance agent for an individualized and free quote. Dial 619-272-2100 and speak with a representative and learn how we can help you save on your commercial insurance policy.