Underwriting Expense Ratio (P&C)

Underwriting Expense Ratio (P&C)

KPI Details

P&C Insurance Underwriting Expense Ratio measures total company operating expenses (not including claims losses or loss adjustment expense) relative to total P&C premium earned over the same period of time. Aside from paid losses (i.e., claims paid out), the majority of insurance company expenses are tied up in sales (i.e., agency operations, direct channel sales, etc.), underwriting and customer service operations. A relatively high value for this KPI may be a lagging indicator of several issues: ineffective sales strategies or targeting methods, low-producing agents and sales staff, highly manual and inefficient underwriting processes, and poor customer retention can contribute to higher than average operating costs. Keeping operating costs to a minimum is vital for insurance firms, as they rely on investment of excess capital to maintain profitability, cover claims payments and develop distribution channels.

KPI Definition

The total cost incurred by the company related to selling, underwriting, onboarding and maintaining (i.e., customer service) property and casualty (P&C) insurance policies divided by total P&C premium earned over the same period of time, as a percentage.

KPI Best Practices

• Perform coverage reviews with customers to address changes in their life that may impact their necessary level of coverage
• Implement effective retention techniques, retention is cheaper than acquisition
• Keep a log of underwriting errors to identify root causes and reduce future instances of re-work

KPI Calculation Instructions Underwriting Expense Ratio (P&C)?

Two values are used to calculate this KPI: (1) the total cost of selling, underwriting and servicing P&C insurance policies (i.e., total operating expense) over a certain time period, and (2) total P&C premium earned over the same period of time. The total cost of selling, underwriting and servicing policies is comprised primarily of costs (labor and all other overhead) related to the insurance company’s sales force (i.e., agency management, commissions, direct channel management, etc.), customer service operations (i.e., call center, etc.) and all other internal functions supporting the business (i.e., underwriting, information technology, HR, etc.). Total claims paid out and loss adjustment expense (LAE) should not be included in the numerator for this calculation. Include only costs and premiums earned related to P&C insurance in this calculation.

KPI Formula :

(Total P&C Operating Expense / P&C Premium Earned) * 100