Ratio of a loss amount to the insured value of the risk hit, a normalized variable that makes risks of very different sizes comparable and which underpins exposure curves.
Comparing a 2M EUR loss on a 4M EUR warehouse with a 2M EUR loss on a 400M EUR plant makes no sense in absolute amounts: the first is near destruction, the second a scratch. The damage ratio normalizes by dividing loss by insured value, bringing every risk in a class onto a common scale between zero and one. Its distribution is peculiar and surprises anyone seeing it for the first time: it is heavily skewed toward zero, with an isolated probability mass at one for total loss, and a sparse region in between. That mass at one is the parameter governing high layer pricing, and it depends on the nature of the risk more than on its size: a silo, a transformer or a vessel is either destroyed entirely or barely touched. Integrating that distribution yields the exposure curve, and it is what the two MBBEFD parameters describe.
European industrial fire loss database, 1,850 losses from 2010 to 2025, normalized by insured value. Median damage ratio 0.8%, mean 6.4%, 90th percentile 19%, and a mass of 3.7% of losses above a 0.95 ratio, that is near total destruction. Those 3.7% carry almost all of the premium for layers above half the insured value.
damage ratio, degré de destruction, loss degree, taux de sinistralité rapporté à la valeur