Expense ratio

What it means

The NAIC’s glossary of insurance terms defines the expense ratio as the “percentage of premium income used to attain and service policies.” Carriers usually figure underwriting expenses against written premium, while the loss ratio uses earned premium.

How it works: add up commission and brokerage, other acquisition costs, general expenses and taxes, licenses and fees, then divide by premium. Commission is not the only item, so an expense ratio cannot be turned into a commission rate. The figure belongs to the carrier, not to one agency.

How it shows on a commission statement

An expense ratio never appears on a commission statement. It reaches you as a decision: a carrier trying to lower its expense ratio may announce a lower commission schedule, a new rate for renewals or a cap on a line. When that happens, check that the new rate starts on the date and for the lines in the notice, and not earlier.

Example

Expense ratio for an invented carrier · EX-50113Example data

Written premium

$10,000,000.00

Commission and brokerage

$1,300,000.00

Other acquisition costs

$500,000.00

General expenses

$900,000.00

Taxes, licenses and fees

$300,000.00

Expense ratio, $3,000,000 ÷ $10,000,000

30.0%

Commonly confused

• Loss ratio measures claims; the expense ratio measures costs of doing business. See loss ratio.
• Combined ratio is the two added together. See combined ratio.
• Commission rate is one input to the expense ratio, not the same number. See commission rate.

Common mistakes to check

• Reading a carrier’s expense ratio as the commission rate it pays.
• Missing a schedule change announced after a carrier’s expense review.
• Assuming a new lower rate applies to policies already in force before the notice date.

Questions

What is a good expense ratio for an insurance company?

It varies widely by line and by distribution model. Carriers selling through agencies carry commission in their expense ratio; compare carriers within the same line rather than using one benchmark.

Does the expense ratio include agent commission?

Yes. Commission and brokerage are part of the underwriting expenses that make up the expense ratio, together with other acquisition costs, general expenses and taxes.

Sources

• National Association of Insurance Commissioners, Glossary of Insurance Terms, entry for expense ratio. Retrieved October 13, 2026.

Lapidar is commission reconciliation software for independent insurance agencies, in its founding pilot. Related: insurance loss ratio calculator.