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, simply cannot be avoided. However, others, such as several cases of water damage losses from a leaky roof, may reflect a poor maintenance policy. Loss runs will show the insurance company your commitment to minimizing the risk potential.

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 everything you need to know about the importance and purpose of loss run reports.

What are loss run reports?

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

A loss run report will show your insurance claims history and give underwriters a glimpse into your insurance past.

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

Severe losses in the past won’t always have a significant impact on your premiums as they could reflect a one-time catastrophe or signal an extraordinary hazard inherent within your business operations. On the other hand, frequent claim activity will send warning signs to underwriters that your maintenance schedule, business practices, or manufacturing process have weaknesses and are at a high risk of claims. 

That said, the underwriter will likely ask for explanations of the past loss activity before making any assumptions about your company’s risks.

Why would your business need one?

A loss run report can be useful in more ways than one for your company. Let’s take a look at some of the main benefits of obtaining a loss run report.

Purchasing a new insurance policy

The most obvious reason you’ll need a loss run report is when signing up for a new insurance policy. Insurers will obviously want to see your claims report to identify the level of risk associated with your company. 

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

Analyzing and mitigating your company’s risks

A loss run is also an important tool that helps you analyze the hazards associated with running your company and establish an effective plan to better mitigate them. By analyzing and understanding your company’s claims history, you can pinpoint weak points and work out how to better manage these risks.

For example, if you notice that your company has dealt with frequent workers compensation claims, you can brainstorm ways to improve employee safety — such as implementing better safety protocols, upgrading equipment, and investing in safety training programs.

While most look at loss runs as a tool that primarily helps insurance carriers, businesses can also leverage these reports 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.

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 the 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 older than six months as claim situations can change significantly during that timeline.

What policies can you get loss run reports for?

There isn’t really a limit to what type of insurance policies you can or cannot generate loss run reports for. Any type of business, regardless of size or industry, can request a loss run report for just about any type of commercial insurance. Here are a few of the most commonly requested:

• General liability
• Directors and officers (D&O)
• Commercial property
• Professional liability (E&O)
• Workers compensation insurance

How to request an insurance loss run report

All you really need to do to receive a loss run report is to contact your insurer through your insurance broker and ask for it. Some might hesitate to ask, especially if they want 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 get in contact with your insurer, you should make sure to let them know the following specifics:

• Which insurance policies you want to get loss run reports for
• How many years of reporting you need
• When you need the reports by

In most U.S. 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 your state’s insurance department and lodge a formal complaint.