What is NOT included in the loss cost calculations in insurance?

In the context of loss cost calculations in insurance, operating expenses are generally not included because loss costs primarily focus on the expected losses from claims, which are typically defined as the pure claims data. Loss costs represent the base loss amount that insurers anticipate paying out in claims, while operating expenses cover the costs associated with running the insurance business, such as salaries, administrative expenses, and overhead, which are separate from the pure loss costs.

Legal fees can be associated with the claims process and may be incorporated as part of claims handling expenses but are not considered a core component of loss cost calculations. Profits, on the other hand, are derived from the margins after all costs have been accounted for and are also excluded from the pure loss cost calculation. The key focus of loss cost calculations is to ascertain the expected loss itself, rather than the broader operational aspects or the insurer's profit margin. Thus, operating expenses stand out as the element that does not belong in these specific calculations.