Definition - What does Loss Severity mean?
Loss severity refers to the financial value a loss. The term, "loss severity," can apply to any type of insurance loss. Loss severity must be calculated so that claims can be properly filed and so that insurance companies and policyholders can understand exactly how much money should be paid to the policyholder.
Insuranceopedia explains Loss Severity
Oftentimes, insurance policies cover total losses no matter what the loss severity is. However, this is not always the case. For example, many health insurance policies have a maximum value can be tapped out before the full losses are covered. In situations where the loss severity is greater than the coverage amount, the policyholder has to pay out of pocket to cover the difference unless he or she has secondary insurance. A secondary insurance policy can provide coverage for the losses not covered by the primary insurance policy.