Loss ratio is the percentage of premium that an insurer pays out in claims. It is calculated by dividing incurred losses (claims paid plus reserves for open claims) by earned premium. A loss ratio of 60% means the insurer paid $0.60 in claims for every $1.00 of premium collected. For roofing contractors, your individual loss ratio is one of the most important factors carriers evaluate when deciding whether to renew your policy and at what premium.
A loss ratio below 50% is generally considered favorable for roofing accounts, while a loss ratio above 70% signals to carriers that your account is unprofitable and may result in non-renewal or significant premium increases. If your loss ratio consistently exceeds 100%, meaning the carrier is paying more in claims than they collect in premium, they will either non-renew your policy or impose severe rate increases at renewal.
Monitoring your own loss ratio helps you understand how your insurer views your account and anticipate renewal outcomes. Request a loss run from your carrier, which details all claims paid and reserved against your policies. If you see your loss ratio trending upward, take proactive steps to improve your safety record, close open claims promptly, and work with your broker to present your risk profile favorably at renewal. Some contractors with strong loss ratios can negotiate premium credits or deductible options with their carriers. Conversely, a high loss ratio limits your market options and forces you into surplus lines carriers that charge significantly more.