What does Loss Costs mean? Read on to discover the definition & meaning of the term Loss Costs - to help you better understand the language used in insurance policies.
Also called "pure premium," the actual or expected cost to an insurer of indemnity payments and allocated loss adjustment expenses (ALAEs). Loss costs do not include overhead costs or profit loadings. Historical loss costs reflect only the costs and ALAEs associated with past claims. Prospective loss costs are estimates of future loss costs, which are derived by trending and developing historical loss costs. Rating organizations such as Insurance Services Organization, Inc. (ISO) (auto liability and general liability), and National Council on Compensation Insurance (NCCI) (workers compensation) develop and publish loss costs. Insurers add their own expense and profit loadings to these loss costs to develop rates. Many insurers will file their own rates or file deviations of the published rates with the states in which they write business.
We hope the you have a better understanding of the meaning of Loss Costs.