We are frequently asked how to explain how TLR’s work.
What is TLR?
TLR is short for Target Loss Ratio. When selling an employee benefit plan, one thing many insurance agents would definitely keep their distance from discussing is the target loss ratio of your group plan. Many insurance companies do not disclose it in the quote to the agents – the agent has to ask for it.
First off, what is Target Loss Ratio?
Target Loss Ratio or TLR is the insurance companies projected profit point of the extended health and dental benefits of your employee benefit plan. It is the maximum dollar amount of claims paid by the insurance company expressed as a percentage of your premium. Every insurance company has expenses, such as claims administration, tax, commissions, printing costs etc. These expenses are added together and represented as a %, which is then deducted from 100%, to determine the TLR.
Investopedia provides a simple example. If a company pays $80 in claims for every $160 in collected premiums, the loss ratio would be 50%.
The TLR is primarily determined by the number of members on the plan and the amount of annual premium paid. In addition, loss ratios vary depending on the type of insurance. For example, the loss ratio for health insurance tends to be higher than the loss ratio for property and casualty insurance. Loss ratios help assess the health and profitability of an insurance company.
Furthermore, TLR has almost nothing to do with changes in premium at renewal, unless there has been a significant increase or decrease in the number of staff members on a plan. However, even then, it is not usually going to change the TLR more than a few percentage points at most.
We hope this has helped you to understand what TLR’s are and how they work.
One of the most important things to us is client priorities. We want to make sure you end up with a plan you’ll love and be satisfied with. Click here to read our latest blog on Client Priorities.
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