Expected Loss Ratio (ELR Method)
Definition of 'Expected Loss Ratio (ELR Method)'
The ELR is calculated by taking the total amount of claims that the company has paid out in the past and dividing it by the total amount of premiums that it has collected. The resulting ratio is then multiplied by 100 to express it as a percentage.
For example, if an insurance company has paid out $100,000 in claims in the past year and has collected $1,000,000 in premiums, its ELR would be 10%. This means that the company expects to pay out $10 for every $100 that it collects in premiums.
The ELR is used to determine the premiums that the company charges its customers. The higher the ELR, the higher the premiums will be. This is because the company needs to make sure that it has enough money to pay out all of its claims.
The ELR is also used to compare different insurance companies. The company with the lowest ELR is generally considered to be the best value for the money.
The ELR method is a simple and effective way to calculate the amount of money that an insurance company expects to pay out in claims. It is used by insurance companies all over the world to determine their premiums.
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