Before expenses and profit are added, the pure cost of claims must be known. Loss cost is the portion of the premium intended to cover expected losses and loss adjustment expenses. It is the starting point for building a final rate.

Rating bureaus often file advisory loss costs based on aggregated industry data. Individual insurers then apply their own expense and profit loads to produce the gross rate charged to customers. Loss costs are expressed per unit of exposure, such as per $100 of payroll or per car-year.

Actuaries update loss costs as experience emerges and as benefit levels or inflation change. Insurers may deviate from bureau loss costs based on their own experience or underwriting appetite. Transparent separation of loss cost from expense load helps regulators and customers understand rate changes.

• Premium component covering expected losses and LAE
• Starting point for rate development
• Often filed by rating bureaus
• Expressed per unit of exposure