Loss Cost

Loss cost is a key measure used by insurance companies to predict the average expense they will incur from future claims for a particular type of insurance. It is calculated by dividing the total claims paid or expected to be paid by the number of units, such as policies or coverage amounts, over a specific period. Essentially, it estimates the future cost of claims per unit of coverage, helping insurers determine appropriate premiums. Loss cost is used in setting rates and designing insurance products, ensuring that premiums adequately cover expected claims while remaining competitive.