How Does My Loss Ratio Affect Business Insurance Premiums?

Business insurance is an essential investment for companies regardless of size or sector. These policies can form the core of a business’s risk management strategies, potentially limiting the financial consequences of incidents that might otherwise prove catastrophic. However, while business insurance is essential, it can be a significant expense. That’s why you should take time to understand various factors that may impact your premiums, such as your loss ratio.

What is a Loss Ratio?

Insurance companies calculate insurance premiums based on the financial results of their relationships with your business. Generally, a loss ratio can be considered as a calculation of a carrier’s profits, or lack thereof, regarding the coverage they provide.

If an insurance company pays out more in claims than they collect through your premiums, it’s considered a high loss ratio. Conversely, if your insurer makes more money than they pay out through your business insurance, it’s considered a low loss ratio.

How Do These Figures Impact Rates?

Many factors help determine your business insurance costs. While the exact weight given to various criteria, such as location, industry and workforce size may vary by insurer, you should expect your loss ratio to be a leading consideration.

As a general rule, a low loss ratio may help your business save on its insurance rates. This is because your insurance carrier is paying out less for claims and may, therefore, consider you a lower-risk client. Meanwhile, if you have a high loss ratio, insurers may view you as riskier and thus increase your rates.

Additionally, an exceptionally high ratio may even lead to nonrenewal of coverage.

We’re Here to Help

Contact James L. Smith Insurance Agency in Pittsburgh, Pennsylvania, to learn more about the intricacies of business coverage and ensure you have the right policies at ideal rates.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.