What is the main purpose of the expense ratio in insurance?

The expense ratio is a crucial metric in the insurance industry primarily used to assess operational efficiency. It represents the ratio of an insurer's operating expenses to its net premiums written. A lower expense ratio indicates that a company is spending a smaller proportion of its premium income on administrative and operational costs, which is a sign of efficient management.

By focusing on operational efficiency, insurers can evaluate how well they are managing their resources in relation to the income they generate from premiums. This insight is vital for making strategic decisions about pricing, resource allocation, and overall business operations.

While the other options relate to important aspects of an insurance company's performance—like underwriting profit, risk assessment, and claims costs—they do not directly reflect the operational efficiency focused on by the expense ratio. Understanding this distinction helps clarify why the expense ratio specifically measures how well an insurer controls its operational costs relative to its earned premiums.