Pure Premium or Loss Cost

Pure Premium or Loss Cost Pure Premium or Loss Cost is the total amount of money an insurer must pay to cover claims, including costs to administer and investigate such claims. It is that portion of the premium equal to expected losses void of insurance company expenses, premium taxes, contingencies, or profit margin. In other words (it is the loss cost per unit of exposure plus the loss adjustment expense directly allocated to the settlement of specific losses). When determining what insurance premium to charge a policyholder, insurance companies factor in the Pure Premium or Loss Cost. Insurance companies make a profit when collected premiums are greater than Pure Premium or Loss Cost. In calculating the Pure Premium or Loss Cost, insurance underwriters use statistical models and historical data from their business and the entire industry. The Pure Premium or Loss Cost multiplier is an adjustment to the Pure Premium or Loss Cost that takes into consideration business expenses and profit. The pure premium may also be calculated as the average claim frequency for the year (claim counts divided by earned policy counts) times the average claim severity for the year (total incurred losses divided by the claims count). The Pure Premium or Loss Cost multiplied by the loss cost multiplier equals the desirable premium to charge for coverage. #benewinsurance #insurtech #inclusiveinsurance #insurance #reinsurance #takaful