What is a loss ratio?
In insurance, a loss ratio is the difference between how much an insurance company gets in premiums compared to how much it pays out to people who have claimed.
Where have you heard about loss ratios?
Loss ratios are used by all types of insurance, from health to car insurance. Of course, that means that loss ratios differ widely by type: health insurance tend to have a higher loss ratio than car insurance, because generally more people claim health insurance at higher prices than they do car insurance.
What you need to know about loss ratios...
Loss ratios are used by insurance companies to check their performance. The lower the ratio, the better the company is doing. In the case of really high ratios, the company is usually experiencing financial trouble – they're settling more claims than a healthy profit margin allows in comparison to the premiums they're collecting.
Loss ratios are also used in banking. It's worked out by looking at the amount of unrecoverable debt compared to the total outstanding debt.
Find out more about the loss ratio..
Loss ratios are worked out by looking at settled claims in relation to insurance premiums cashed in. Read our guide to insurance premiums here.