Understanding Claims Trends and Loss Picks

A good Risk Manager can predict, with a great degree of certainty, the number of incidents and the total claims amount a Dealership will incur in a given year.

Now, he or she is not a soothsayer or prophet…they have merely analyzed the historical claims information and, given no appreciable changes in the Dealership management or size, the future results are fairly predictable.

Why is this information important?  Answer:  Because it is the most critical component in the premium development for all insurance policies.

Carriers use a variety of rating factors:  Employee Counts; Demo Ratios: etc.  But, it is the claims versus premiums ratios that determine the profitability of a risk.

So, to truly control your premiums, you need to begin to think like an underwriter.  Here’s the first step:

Secure a 5 (or even 7) year historical claims history from your Insurance carriers.  Map out the claims by category and apply any increases or decreases in your Sales Volume/Locations or Employee counts to develop trends.  You will quickly be able to see the areas where the majority of your claims occur and how that frequency develops into severity (large claims).

This is the basis for an analysis of your claims trends – the tool Underwriters use to develop the “so called” Loss Pick.  Understanding this is the first step in controlling your premiums.

Watch for the next Info Blast…The Relationship Between Claims and Premiums.