Accident Year
When dealing with car insurance there are specific terms used by the insurance industry to describe details relating to car insurance. One such term is accident year. This term relates to the financial year in which an accident or loss took place. When an insurance company compiles its financial year-end reports the term accident year basis is used to describe the total losses it incurred resulting from accidents during the twelve month period. This loss figure is then compared to the premiums earned during the same period. The accident year refers to the year the accident took place; it may not be the same year in which the loss was settled – the term used in such as case will be settlement year.
Accident year experience matches all accident losses (irrespective of when the losses were reported) during a specific year (usually a calendar year) with all earned premiums during that year. The losses are divided by the earned premiums and the result is called the accident year experience. This calculation is done every year and is used by the insurance company to calculate its loss reserve and is called the accident year loss ratio. The final result can only be seen once all the accident claims have been settled.