Burning-Cost Ratio

Wouldn't it be cool if there was an insurance industry Burning Man? If there was, then this'd be it.

But ok, ok...even insurance companies need to take out insurance policies at times. In a year of hurricanes, volcanoes, and floods, blight, rivers of blood, perpetual darkness, frogs, and so on...sometimes the amount of claims filed exceeds the premiums customers paid. So insurance companies take out a policy called “reinsurance” to cover any shortfalls during a catastrophic year.

The burning-cost ratio is a rating method they use to determine how much reinsurance they should buy based on past claims experience. They simply divide the amount of excess losses by total premiums to get the ratio. The more claims data available, the more accurate the burning-cost ratio will be.