Also called "pure premium," the actual or expected cost to an
insurer of indemnity payments and allocated loss adjustment expenses
(ALAEs). Loss costs do not include overhead costs or profit loadings.
Historical loss costs reflect only the costs and ALAEs associated
with past claims. Prospective loss costs are estimates of future
loss costs, which are derived by trending and developing historical
loss costs. Rating organizations such as Insurance Services Organization,
Inc. (ISO) (auto liability and general liability), and National
Council on Compensation Insurance (NCCI) (workers compensation)
develop and publish loss costs. Insurers add their own expense and
profit loadings to these loss costs to develop rates. Many insurers
will file their own rates or file deviations of the published rates
with the states in which they write business.
Links for IRMI Online Subscribers
PracRisk, Topic B-23