Underwriting Loss

What Does Underwriting Loss Mean?

Underwriting loss refers to the losses an insurance company incurs after paying out claims and covering administrative expenses related to its insurance policies over a specific period.

Insuranceopedia Explains Underwriting Loss

An underwriting loss occurs when an insurance company pays out more claims than expected, and the premiums collected do not cover the overall expenses. The premiums an insurer charges are set in advance based on its estimate of future claims, which is the math explained in this guide on how business insurance premiums are calculated. This reflects inefficiencies in the company’s underwriting activities. Underwriting losses typically result from large claims and disproportionate expenses. However, an insurance company may intentionally accept underwriting losses in the short term to gain market share or attract new customers. An insurer that posts underwriting losses year after year can run into trouble paying claims, which is one reason financial strength ratings come up when shoppers compare the best car insurance companies.