Claim costs are the largest single determinant of premiums. Claim costs include payments to the insured for physical damage and personal injury, legal expenses in the defense of third party claims, payments to third parties and administrative expenses such as adjusters. Claim costs will vary by jurisdiction due to different benefit levels, weather and traffic conditions.
The graphs show three widely used measures for the Private Passenger Automobile Excluding Farmers.
- Average earned premium – the average pro-rated premium per vehicle.
- Loss cost is also known as the “pure premium”. It is the per earned vehicle cost of claims and loss adjustment expenses before general expenses and profit.
- Loss ratio is the ratio of losses to earned premium. A ratio of a 100% means that losses paid equals premium earned.
- The data for the graphs are from the GISA Actual Loss Ratio Exhibits – AUTO 1010.
- A formal pricing analysis with additional adjustments are required to determine rates.