What Are Loss Run Reports and Why Are They Important?

Loss run reports are, essentially, the insurance world’s equivalent to credit scores. Just as a bank would want to see your business’s credit score before offering you a loan, insurers want to see a loss history before providing coverage. This report will reflect on how well the business is operating and managed.

Some claims, like a building being struck by lightning, just cannot be avoided. But having several water damage losses from a leaky roof, for example, may reflect a poor maintenance policy. Loss runs will show the insurance company your commitment to minimizing the potential for risk, which they obviously need to see in order to decide what insurance terms they would be willing to offer.

Just as credit scores give banks an idea of whether it’s a good idea to give your business a loan or credit card, loss runs can identify the level of risk underwriters could face if they insure your business. The reports give both you and potential insurers a clear picture of your experience and the degree of risk associated with insuring your company.

By reviewing your loss runs reports, insurance companies will evaluate the severity of the losses as well as the frequency with which they occur. This is a critical element of the underwriting process.

A loss’s severity can reflect a one-time catastrophe or it could signal an extraordinary hazard that is inherent within your business operations. Conversely, frequent claim activity does send warning signs to underwriters that your maintenance schedule, business practices, or manufacturing process may display weaknesses. Therefore, an explanation of the loss activity is always warranted to prevent the underwriter from making any presumptions.

If you’re a young startup looking to buy insurance for the first time or simply interested in learning more about the process, here’s what you need to know about the importance and purpose of loss run reports.

Why Would Your Business Need One?

Obviously, insurers want to see your claims report to identify the level of risk associated with your company. However, a loss run can also be used as a tool that helps you analyze the hazards associated with running your company and establish a plan to better mitigate them.

And while most look at loss runs as a tool that primarily helps insurance carriers, these reports can also be leveraged by businesses to find weaknesses in their operating protocols. If businesses can demonstrate that corrective measures were taken to prevent losses, this could ultimately influence the underwriter’s position.

Also, when you are seeking to find better premiums, having evidence of a clean claims history can help you negotiate lower premiums. The process is quite similar to buying car insurance where the better your driving record is, the better your chances are of getting a discount on your coverage.

What Information is Included in a Loss Run Report?

If your business has never filed a claim, your loss run report will simply state “no losses reported.” Otherwise, the information that you can expect on your loss run report would include:

  • Company name
  • Policy number
  • Policy term
  • Loss report valuation date
  • Date of claim
  • Date claim was reported
  • Incident description (reason for claim)
  • Type of claim (insurance policy)
  • Amount paid to date by insurer in legal/defense costs
  • Amount paid to date by insurer in settlement costs, property damage, medical expenses
  • Amount insurer has set aside for future costs (reserve funds)
  • Whether the claim is currently open or closed

It is important to note the valuation date of the report is a critical component since it establishes credibility that the information is current and up to date. Underwriters would discount information that is older than six months as claim situations can change significantly during that timeline.

Any type of business, regardless of size or industry, can request a loss run report, and for just about any type of commercial insurance (general liability, D&O, commercial property, E&O, etc.).

How Do You Get One?

All you really need to do in order to receive a loss run report is to contact your insurer through your insurance broker and ask for it. Some might be hesitant to ask, especially if they are looking to move from their current insurer. But there really is nothing to fret. In the insurance world, loss run reports are just business as usual.

Once you do get in contact with your insurer, you need to let them know the following specifics:

  • What insurance policies you’d like to get loss run reports for
  • How many years of reporting you need
  • When you need the reports by

In most states, insurance companies are required by law to send you the requested information in ten days or less. If you believe that your insurer is purposely delaying or trying to avoid sending you the reports, or if they do not do so within the required amount of time by law, you can contact the State Insurance Department and lodge a formal complaint.