Loss Cost
Categories: Insurance
Loss costs (also known as Pure Premium or Pure Costs) are the portion of an insurance premium the company feels will be used to cover claims and the costs of adjusting claims they receive (so, basically, the total amount the claim will cost the company).
In some cases, that administrative cost could be for a lot of work, such as a complicated workman's comp issue with he said/she said between the parties, or a simple, one-time doctor visit.
The base of this number can come from organizations, such as Insurance Services Organization, Inc (ISO) and the National Council on Compensation Insurance (NCCI). The insurance company can then add their own expenses to the base to come up with their rates.
It's important to note that loss costs do not include overhead costs, other than settling the claim. Often these rates will be published with the state in which the insurance company sells insurance. For an established company, the rate is often determined by historical data. An educated guess, if you will. And even if you won't.