* Is High or Low Best: Low is Best
Combined Ratio is a common, vital indicator of a property and casualty (P&C) insurance company's profitability. The factors impacting Combined Ratio are simple - premium earned, losses paid out and operating expenses. As one would expect, losses paid out and operating expenses should be kept to a minimum, while earned premium should be maximized. There are countless factors that can impact Combined Ratio: claims leakage, a spike in catastrophe losses, outdated or ineffective underwriting rules, lack of discipline within the company's sales force, lack of strategic direction, subpar customer service and retention, and waste within support and administrative functions of the business (e.g., finance, HR, IT, etc.) can move the needle significantly in terms of Loss Ratio and Underwriting Expense Ratio (and consequently, Combined Ratio).
P&C Insurance Combined Ratio is the sum of Loss Ratio (claims paid out divided by premium earned) and Underwriting Expense Ratio (cost of sales, underwriting and customer service divided by premium earned). This ratio is a basic measure of an insurance company's overall profitability.
Two aggregate values are used to calculate this KPI: (1) the insurance company’s P&C Loss Ratio, and (2), the company’s P&C Underwriting Expense Ratio. Loss Ratio is calculated by dividing the sum of total claims paid out and loss adjustment expense (loss + LAE expense) by total premium earned over the same period of time. Underwriting Expense Ratio is calculated by dividing total operating expense (not including loss and LAE expense) by premium earned over the same period of time. Combined Ratio is simply the sum of these two values (Loss Ratio + Underwriting Expense Ratio).
((Total P&C Claims Losses + Total P&C Operating Expense) / P&C Premium Earned) * 100
This workflow template illustrates the process by which property and casualty insurance claims are received, processed and approved/denied. Purchase and download this template in PDF, Visio...
Type : Workflow Template
Process Participants : Claims Adjustor, Claims Manager, Claims Processor
Let us take your KPIs & business intelligence efforts to the top.
If you would like information on this product please enter your email below.