Coverage Insights: What Are Loss Runs?
July 12, 2023
Before a bank loans money to you, it will review your credit history to understand what type of risk you are. Similarly, commercial insurance providers review claims histories before determining insurance premiums for their clients.
As such, it’s crucial for organizations to have a sufficient grasp of their past losses. Fortunately, that’s where insurance loss runs can help.
What Is a Loss Runs Report?
A loss runs report, which an insurer generates, records the claims made against an insured’s policies. These reports are used for various types of commercial coverage and provide a detailed snapshot of an organization’s claims history.
A loss runs request is most frequently made when organizations apply for policies with new carriers. Underwriters will often require organizations to submit loss runs for the past three to five years along with their applications.
Information Included in Loss Runs
Loss runs include a variety of information related to organizations’ past insurance claims. Although the specific layout of these reports may vary, they are usually structured similarly between different insurers. A typical loss run generally provides the following details:
- The insured’s and insurer’s names
- The policy number and term
- The date of each reported claim
- The loss report valuation date
- A description and reason for each claim
- The type of claim filed for each loss
- Expenses paid by the insurer and the amount the insurer has reserved for future claim costs
- The status of each claim
If an organization has not filed any claims, its loss run will state that there are no reported losses.
How Loss Runs Impact Organizations
Loss runs can affect organizations from both an underwriting and risk management perspective. Specifically, an underwriter can use the report’s information to help determine the level of risk an organization presents. A loss run containing many claims may indicate that an organization is not a good risk for an insurer. On the other hand, if an organization has a relatively clean report, it could indicate that it performs better than its peers and might be a profitable risk to write. In other words, loss runs can play an essential role in determining whether organizations are eligible for coverage and what their premiums will be.
Organizations can also leverage loss runs to manage their exposures. By evaluating past claims and loss trends, organizations can better identify primary cost drivers and gaps in their risk management programs. Then, they can implement additional risk management techniques to reduce the frequency and severity of claims, improving their loss runs and controlling their future insurance expenses.
Obtaining and Reading Loss Runs
Organizations can obtain loss runs from their insurers. Each insurer has specific processes for submitting loss run requests. Typically, organizations need to consult their insurance professionals to make these requests.
In most states, insurers must provide loss runs to their policyholders within 10 days of receiving requests. Upon receiving their loss runs, organizations should consider the following best practices when reviewing these reports:
- Look for errors. Organizations should closely review their loss runs to ensure that all the information provided is accurate. They should let their insurers know if they find mistakes because any undetected claims errors could affect their overall coverage costs.
- Assess the status of claims. In addition to searching for potential inaccuracies in their loss runs, organizations need to monitor the status of their individual claims. In particular, organizations should focus on which claims have been closed, which are still open, how much their insurers have paid on open claims to date and how much funding has been set aside in reserves for these claims. In the case of open claims, it may be best for organizations to determine a clear course of action to help resolve them as quickly as possible.
- Identify possible loss patterns. Organizations should analyze their loss runs for any patterns (e.g., losses repeatedly resulting from the same types of incidents occurring during the same period or at the same location). After all, these patterns could highlight the need for targeted loss control strategies and enhanced risk management protocols.
Using Loss Runs for Improvement
Organizations should note that they don’t need to navigate these reports alone. Brokers are highly skilled at evaluating loss runs and can help organizations assess their reports and answer their questions. Together, brokers and insureds can develop proper risk management tactics based on the specific findings.
Related Reading: What Is Commercial Insurance?
The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.
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