The Relationship Between Claims and Premiums
As a young Account Executive with Universal Underwriters I got a taste of how garage premiums are truly developed. I had worked the employee rating factors on an account and presented both the worksheet and the Loss History to my Division Underwriter for review. “Let’s see,” he said.
Then he did something that surprised me.
He totaled the Incurred number on the claims report, divided by the months included in the report and multiplied by 12. ‘’This,” he said, ‘’is the anticipated Loss Pick for the year.” He then divided that number by 35% and noted, “We need this much premium to be profitable.’’
Granted, my Underwriter did give a cursory review of my rating pages to ensure the company was in compliance with their state filings, but he gravitated more toward the ‘’number’’ he calculated as the premium required for a profitable account.
Realize that it is the anticipated claims that really drive premiums. Insurance companies, like all businesses need to be profitable. By underwriting to a safe 35% Loss Ratio, they can accommodate for the unforeseeable adverse claim years.
Understanding the Loss Pick/Anticipated Claims of your Dealership is simple math. Look at the historical claims and project forward. This will provide you with valuable insight into the premiums you can anticipate. Use this as a Risk Management tool…lower the claims and you lower the premiums.
Watch for the next info blast…What factors make premiums fluctuate!