Which measure compares losses to premiums to assess the cost efficiency of claims handling?

• A. Loss ratio
• B. Customer satisfaction data
• C. Best practices
• D. Claims audits

Answer: (A)

Loss ratio is the metric that directly compares losses to premiums to gauge the cost efficiency of claims handling. It is typically calculated as incurred losses (plus loss adjustment expenses) divided by net premiums earned, showing how much of each premium dollar is consumed by claims costs. A higher loss ratio means more of the premium goes toward paying claims and handling them, signaling lower efficiency or higher claim costs, while a lower loss ratio indicates more premium dollars remain for underwriting profit after claims. This makes it the best indicator of how cost-effectively the claims process is operating.

Customer satisfaction data focuses on service quality rather than cost, best practices are guidelines, and claims audits evaluate accuracy and compliance but do not directly measure losses relative to premiums.