After comparing the cost of paid claims and related expenses to the total earned premiums for the previous year, an insurer determined that it needed stricter underwriting to increase profitability. This was determined by calculating a:

A. Loss reserve
B. Expense ratio
C. Loss ratio
D. Experience modification factor

Question

18-07-2024
Business

Answered

After comparing the cost of paid claims and related expenses to the total earned premiums for the previous year, an insurer determined that it needed stricter underwriting to increase profitability. This was determined by calculating a:

A. Loss reserve
B. Expense ratio
C. Loss ratio
D. Experience modification factor

Answer :

Other Questions

which of these arranged from smallest to largest level of organization? A. organs, tissues, cells, organ systems B. compounds,cells,tissues,organs, C. molecules

Find the simple interest for each principle,rate,and time.Round to the hundredths place 44.) $500 invested at 6 1/4 for 5 years 45.) $769 borrowed at 5% for 13

Which sentence uses a verb that agrees with its subject? A. Beneath the porch is both of our bicycles. B. Along the streets near the waterfront rides several

(2x^3 + 4x^2 + 15x - 8) / (x - 3) Use long division

Under the _______ system, Spanish conquistadores were rewarded with local villages and control over the local labor force.

Paul is moving to Australia. The total weight of his 4 suitcase is shown on the scale below. On a number line, round the total weight to the nearest 100

a pitcher threw a baseball straight up at 35.8 meters per second. what is the ball's velocity after 2.50 seconds?

What is another way to write the ratio 16 to 25

what does the fraction 9/81 equal

A park is in the shape of a rectangle 8 miles long and 6 miles wide. How much shorter is your walk if you walk diagonally across the park than along two sides o

GinnyAnswer GinnyAnswer · Answer 1 · 2024-07-18T20:54:55-04:00

To determine that stricter underwriting is necessary to increase profitability, the insurer has analyzed the relationship between the cost of paid claims and related expenses and the total earned premiums. Here's a detailed step-by-step explanation:

1. Identifying Relevant Metrics:
- Loss Reserve: This is an estimation of the insurer's liability for claims that have been incurred but not yet paid.
- Expense Ratio: This metric concerns the operational costs of the insurer, which include commissions, underwriting expenses, etc., but does not directly relate to the claims.
- Loss Ratio: This calculates the proportion of the incurred claims and related expenses to the total earned premiums. It essentially measures the insurer's costs related to the claims relative to their income from premiums.
- Experience Modification Factor: This is a factor used to adjust insurance premiums based on the policyholder’s past loss experience.

2. Analyzing Provided Information:
- The insurer is comparing the cost of paid claims and related expenses to the total earned premiums. This comparison directly measures the efficiency of their underwriting and the financial health of their operations regarding insurance claims.

3. Loss Ratio:
- The loss ratio is defined as the ratio of incurred claims and related expenses to the earned premiums.
- Formula: [tex]\[ \text{Loss Ratio} = \frac{\text{Incurred Claims} + \text{Related Expenses}}{\text{Earned Premiums}} \][/tex]

4. Conclusion:
- By calculating this ratio, one can determine how much of the premium income is being consumed by paid claims and related expenses.
- A higher loss ratio indicates that a substantial portion of the premiums is being used to cover claims, suggesting less profitability.
- To enhance profitability, stricter underwriting guidelines could be implemented to reduce the loss ratio, meaning fewer claims or lower claims costs relative to the premiums earned.

Thus, based on this analysis, the insurer's decision to implement stricter underwriting to improve profitability was determined by calculating the:

Correct answer:
C. Loss ratio