What Is a Good Loss Ratio for Dealer Reinsurance?
There is no magical good loss ratio. The right question is whether it is appropriate for this product, at this stage of development.
Dealers frequently ask:
The problem is that there is no single number that is "good" for every product.
What Is a Loss Ratio?
In simplified terms:
If earned premium is $1 million and incurred claims are $600,000, the loss ratio is approximately:
Is 60% Good?
Maybe. It depends on the product.
A VSC behaves differently from Tire & Wheel. Tire & Wheel behaves differently from Appearance Protection.
Terms, vehicle ages, mileage, coverage, pricing and contract maturity all matter.
Extremely Low Isn't Automatically Better
Suppose a product has a 15% loss ratio. That may look fantastic from an underwriting perspective. But ask why.
- Is the product very profitable?
- Is the book immature?
- Is pricing excessive?
- Is coverage too restrictive?
- Are legitimate claims being denied?
A product must create value for the customer as well as economics for the dealer.
Watch Development
A three-month-old book of five-year VSCs cannot be evaluated as though all claims have already occurred.
Analyze loss ratios by:
The Bottom Line
There is no magical "good loss ratio." The right question is:
Your provider should be able to answer that question.
If all they show you is one blended number, ask for more detail.
When was the last time someone independently reviewed your reinsurance program?
Confidential. No obligation. There is no charge for the initial assessment. You may discover an opportunity, a problem, or that your program is exactly where it should be. But you’ll know.