---
title: "What Is an Expense Ratio in Insurance? — Lapidar"
url: https://getlapidar.com/glossary/expense-ratio/
description: "An expense ratio is the share of premium a carrier spends on acquiring and servicing policies, commission included. Why it moves commission schedules."
last_modified: "Tue, 13 Oct 2026 00:30:00 GMT"
source: getlapidar.com (HTML converted to Markdown at the edge)
---

Glossary · Insurance agency commissions

# Expense ratio

An expense ratio is the share of premium a carrier spends to acquire and service its policies, including agency commission, salaries, overhead and premium taxes. Added to the loss ratio it gives the combined ratio. Commission is one of its main components, so carriers looking to lower their expense ratio may revisit commission schedules.

By Lapidar, the team building it · October 13, 2026 · Also called underwriting expense ratio; acquisition expense ratio

## What it means

The NAIC’s [glossary of insurance terms](https://content.naic.org/glossary-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%

Example data. Commission here is 13% of premium, less than half of the 30% expense ratio.

## Commonly confused

- **Loss ratio** measures claims; the expense ratio measures costs of doing business. See [loss ratio](https://getlapidar.com/glossary/loss-ratio/).
- **Combined ratio** is the two added together. See [combined ratio](https://getlapidar.com/glossary/combined-ratio/).
- **Commission rate** is one input to the expense ratio, not the same number. See [commission rate](https://getlapidar.com/glossary/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](https://content.naic.org/glossary-insurance-terms), entry for expense ratio. Retrieved October 13, 2026.

Lapidar is [commission reconciliation software for independent insurance agencies](https://getlapidar.com/), in its founding pilot. Related: [insurance loss ratio calculator](https://getlapidar.com/tools/insurance-loss-ratio-calculator/).

In this entry

1. [What it means](https://getlapidar.com/glossary/expense-ratio/#meaning)
2. [On a commission statement](https://getlapidar.com/glossary/expense-ratio/#on-statement)
3. [Example](https://getlapidar.com/glossary/expense-ratio/#example)
4. [Commonly confused](https://getlapidar.com/glossary/expense-ratio/#confused)
5. [Common mistakes](https://getlapidar.com/glossary/expense-ratio/#mistakes)
6. [Questions](https://getlapidar.com/glossary/expense-ratio/#faq)
7. [Sources](https://getlapidar.com/glossary/expense-ratio/#sources)

All 51 terms, from account current to written premium.

[Glossary A–Z](https://getlapidar.com/glossary/)

Check whether a carrier’s new commission rate hit only the lines and dates it announced.

[See a sample report](https://getlapidar.com/sample-report/)

## Reconciling statements is the hard part.

Check whether a carrier’s new commission rate hit only the lines and dates it announced. [See a sample report](https://getlapidar.com/sample-report/), or read [how the founding pilot works](https://getlapidar.com/pilot/).

[Open an account — founding pilot](https://app.getlapidar.com/signup)

[See a sample report](https://getlapidar.com/sample-report/)