Losses Incurred

What Does Losses Incurred Mean?

Losses incurred refer to the total amount of benefits paid out to policyholders over a specific period, typically one year, along with any adjustments made to the loss reserves from the previous period.

Insuranceopedia Explains Losses Incurred

Insurance companies would prefer to collect premiums without ever having to pay out benefits; however, accidents and other unfortunate events do occur, leading policyholders to file claims. A large share of losses incurred in any given year traces back to events like major storms, when many homeowners file hurricane insurance claims at once, and insurers have to pay them out. Consequently, insurers establish loss reserves to cover claims associated with the policies they underwrite. They estimate the potential losses to determine an appropriate amount to set aside, which may either fall short or be sufficient. If the loss reserves are insufficient to cover benefit payments, insurers would need to draw from their surplus.