Loss ratio is the ratio of claims paid out to premiums collected on F&I products. It is calculated as (total claims paid ÷ total premiums collected) × 100, expressed as a percentage. Loss ratio is a key metric for evaluating reinsurance profitability.
For independent dealers participating in reinsurance, loss ratio is one of the most important numbers to track. It tells you how much of the premium you collect on F&I products is being consumed by claims. A lower loss ratio means more of each premium dollar stays in your reinsurance entity as profit, while a higher loss ratio indicates that claims are eating into your reserves.
What constitutes a healthy loss ratio depends on the product mix, the types of vehicles being covered, and the customer base. Products like tire-and-wheel protection and key replacement tend to carry lower loss ratios, while vehicle service contracts on higher-mileage vehicles may generate more claims activity. Dealers who are strategic about pricing, product selection, and the types of coverage they offer can manage their overall loss ratio to ensure their reinsurance entity remains profitable.
Loss ratio also helps dealers evaluate whether specific F&I products are performing well. If a particular product consistently shows an unfavorable loss ratio, it may be worth adjusting the coverage terms, pricing, or replacing that product with a better-performing alternative. Over time, monitoring loss ratio helps dealers build a stronger, more predictable reinsurance book.
Get a clear picture of how your F&I products are performing and where your loss ratio stands relative to your profit goals.