The ratio of claims paid to premium earned, used by carriers to judge how profitable an agency's book of business is.
Loss Ratio
The ratio of claims paid to premium earned, used by carriers to judge how profitable an agency's book of business is.
Loss ratio measures claims against premium: incurred losses divided by earned premium, expressed as a percentage. A carrier writing $1,000,000 in premium and paying $600,000 in claims has a 60% loss ratio on that book.
For an agency, loss ratio matters because it drives carrier relationships and money.
- Lower is better from the carrier\'s perspective — it signals profitable, well-selected business.
- Contingency and profit-sharing payments are frequently tied to keeping the loss ratio below a target.
- Appointments and appetite: a persistently high loss ratio can lead a carrier to cut commissions or non-renew the agency\'s appointment.
Agencies monitor loss ratio by carrier to protect both bonus income and their standing in the market.