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📈 '''Claims severity''' measures the average cost per claim within a given portfolio, [[Definition:Line of business | line of business]], or time period. In the insurance industry, it stands alongside [[Definition:Claims frequency | claims frequency]] as one of the two fundamental dimensions of [[Definition:Loss experience | loss experience]], and together these metrics form the backbone of [[Definition:Actuarial science | actuarial]] pricing, [[Definition:Loss reserve | reserving]], and portfolio management. A single large liability verdict, catastrophic property loss, or costly medical event can dramatically shift severity figures and reshape an insurer's financial outlook.

📐 Calculating severity is straightforward in concept — divide total [[Definition:Incurred losses | incurred losses]] by the number of claims — but the practical execution requires careful attention to data quality and timing. Open claims carry [[Definition:Loss reserve | reserves]] that may prove inadequate or redundant, meaning severity estimates evolve as claims develop toward closure. [[Definition:Actuarial science | Actuaries]] apply [[Definition:Loss development factor | loss development factors]] to project ultimate severity and use techniques like [[Definition:Loss triangle | loss triangles]] to monitor trends. Severity can be segmented by [[Definition:Coverage | coverage]] type, geography, or policy limit, enabling [[Definition:Underwriting | underwriters]] to identify pockets of deterioration before they spread across a book.

🔍 Rising severity trends demand attention from every level of an insurance organization. They can signal shifts in litigation environments, medical cost inflation, supply-chain disruptions affecting repair costs, or emerging risks that existing [[Definition:Rating | rating]] models have not yet captured. Carriers facing persistent severity increases may respond by tightening [[Definition:Underwriting guidelines | underwriting guidelines]], adjusting [[Definition:Deductible | deductible]] structures, or purchasing additional [[Definition:Reinsurance | reinsurance]] to cap exposure. For [[Definition:Reinsurance | reinsurers]] writing [[Definition:Excess of loss reinsurance | excess-of-loss]] covers, severity is arguably the single most consequential metric, since their exposure begins precisely where individual claim costs exceed a specified threshold.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Claims frequency]]
* [[Definition:Loss ratio (L/R)]]
* [[Definition:Loss development factor]]
* [[Definition:Incurred losses]]
* [[Definition:Actuarial science]]
* [[Definition:Excess of loss reinsurance]]
{{Div col end}}

Definition:Claims severity - Revision history

PlumBot: Bot: Creating new article from JSON