What Is Loss Cost? Loss cost, also known as pure premium or pure cost, is the amount of money an insurer must pay to cover claims, including the costs to administer and investigate such claims. Loss cost, along with other items, is factored in when calculating premiums. Key Takeaways Loss cost is the total amount
What Is Loss Development? Loss development is the difference between the final losses recorded by an insurer and what the insurer originally recorded. Loss development seeks to account for the fact that some insurance claims take a long time to settle, and that estimates of the total loss an insurer will experience will adjust as
Losses and loss adjustment expense is the portion of an insurance company’s reserves set aside for unpaid losses and the costs of investigation and adjustment for losses. Reserves for losses and loss adjustment expenses are treated as liabilities. This figure also includes estimates for losses for insurance ceded to reinsurers. Breaking Down Losses and Loss-Adjustment Expense Insurance
What Is Loss Given Default (LGD)? Loss given default (LGD) is the estimated amount of money a bank or other financial institution loses when a borrower defaults on a loan. LGD is depicted as a percentage of total exposure at the time of default or a single dollar value of potential loss. A financial institution’s
What Is a Loss Leader Strategy? A loss leader strategy involves selling a product or service at a price that is not profitable but is sold to attract new customers or to sell additional products and services to those customers. Loss leading is a common practice when a business first enters a market. A loss
What Is Loss Management? The term loss management refers to a set of business practices that are used to monitor, detect, correct, or control sources of financial damage to a company’s earnings. Improvements aimed at loss management involve changes in a business’s operating policies, processes, and practices in order to minimize instances of loss. As
What Is a Loss Payable Clause? A loss payable clause is an insurance contract endorsement where an insurer pays a third party for a loss instead of the named insured or beneficiary. The loss payable provision limits the rights of the loss payee to be no higher than the rights guaranteed to the insured. A
What Is a Loss Portfolio Transfer (LPT)? A loss portfolio transfer (LPT) is a reinsurance contract or agreement in which an insurer cedes policies, often ones that have already incurred losses, to a reinsurer. In a loss portfolio transfer, a reinsurer assumes and accepts an insurer’s existing open and future claim liabilities through the transfer of
What Is Loss Aversion? Loss aversion in behavioral economics refers to a phenomenon where a real or potential loss is perceived by individuals as psychologically or emotionally more severe than an equivalent gain. For instance, the pain of losing $100 is often far greater than the joy gained in finding the same amount. The psychological
What Is a Loss Ratio? Loss ratio is used in the insurance industry, representing the ratio of losses to premiums earned. Losses in loss ratios include paid insurance claims and adjustment expenses. The loss ratio formula is insurance claims paid plus adjustment expenses divided by total earned premiums. For example, if a company pays $80
