Loss Ratio
Categories: Insurance
Loss ratio is the ratio of claims paid to premiums earned, over a set period of time, usually one year or one quarter. It is calculated by total losses paid out for claims, plus adjustment expenses for paid claims, then divided by the total earned premiums.
It's sort of the opposite of a profit margin...the glass-half-empty approach.
A given term life insurance policy insures 10,000 20-somethings. They all paid $800 that year for a $1 million policy that pays for pretty much any cause of death. The year goes by and GEICO collects $8 million in those premiums. One millenial dies (just didn't see the bus). GEICO pays the $1 million and their loss ratio is 1/8. They pocket $7 million in gains from premiums sales.
Nice work if you can get it. Maybe next year they add "Watch For Bus" signs and pocket $8 million.