KPI Benchmarks : Loss Ratio (P&C)
- Benchmark Range
- Benchmark Average
- Benchmark Sample Size (n) 31
* Is High or Low Best: Lower is Better
Loss Ratio (P&C)
Loss Ratio is a major, industry-standard measure of an insurer's overall profitability and the procedures/processes they have in place to manage overall paid losses (and related loss adjustment expenses). Loss Ratio is typically a publicly-reported metric (for any publicly-traded insurance company), so poor performance can negatively impact an insurance company's market value. There are several factors that can drive high Loss Ratios: relatively high claims and loss adjustment labor costs (i.e., costs for loss adjusters, claims employees, etc.), subpar underwriting guidelines and rules (i.e., the company is onboarding high risk policyholders), poor claims estimation and adjustment processes, and extended claims cycle times are known to increase paid losses. A higher-than-usual amount of catastrophe losses (e.g., hurricanes, etc.) can also increase paid losses. Insurance firms typically analyze claims processes regularly to reduce "claims leakage" and drive down Loss Ratios.
The total amount of property and casualty (P&C) insurance claims paid out to policyholders plus any loss adjustment expenses (LAE) divided by total P&C premium earned over the same period of time, as a percentage. Loss Ratio is a publicly-reported metric (for any publicly-traded insurance company)
KPI Best Practices
- Underwriting rules are reviewed regularly to maximize new policies while limiting risk exposure
- Claims function is staffed appropriately, controlling loss adjustment expenses
- Audit closed claim files to identify main drivers of claims leakage
KPI Calculation Instructions Loss Ratio (P&C)?
Two values are used to calculate this KPI: (1) the sum of the dollar amount of P&C insurance claims paid out and loss adjustment expenses (LAE), and (2) the total amount of P&C insurance premiums earned over the same period of time. LAE is the total expense associated with investigating and settling insurance claims. Include both allocated and unallocated loss adjustment expenses in the numerator of this calculation. Do not include unearned premium in the denominator of this calculation.
KPI Formula :
((Total Claims Paid Out + Total Loss Adjustment Expense) / Total Premium Earned) * 100