What do loss costs represent in insurance?

Loss costs refer specifically to the portion of an insurance premium that covers the costs associated with claims and their adjustment expenses. This includes the direct costs of the claims that the insurer expects to pay out as well as administrative costs linked to processing these claims. Understanding loss costs is crucial for insurers as they set rates for premiums based on estimated future loss costs to ensure they can cover expected claims while remaining financially viable.

In the context of the other options: the average cost per claim refers to a narrower measure and does not encompass the full range of claims and adjustment expenses that make up loss costs as a whole. While the total projected revenue for insurers could include various income sources, it does not directly relate to the calculation of loss costs. The expense ratio, which compares the insurer's expenses to its premiums, is also distinct from loss costs, as it focuses more on the insurer's operational efficiency and financial health rather than the specific expenses tied to claims.