Today’s digital world is causing big changes in the insurance business, which used to be a stronghold of stability and risk management. Insurers can no longer afford to ignore the need to adopt Business Intelligence (BI) and data-driven strategies when competing in today’s dynamic market. It is impossible to emphasize the significance of Key Performance Indicators (KPIs) for efficient monitoring. These KPIs clearly show an insurer’s success and can help in decision-making. This post will examine the top 28 KPIs for insurers, managing directors, chief people officers, and country managers to monitor.
Types of Insurance KPIs
KPIs play a crucial role in the insurance industry, allowing businesses to track progress, make educated decisions, and adjust to a dynamic environment. Let’s examine how insurers use KPIs to improve operations and prosper in the digital age.
Financial Insurance KPIs
1. Premium Growth Rate
Premium Growth Rate is the percentage change in premium revenue over time. It’s a crucial metric for monitoring development over time. According to a study by McKinsey, insurance premiums are expected to grow at a compound annual rate of 5-6% by 2025. Tracking premium increases is essential to gauge the success of marketing and sales efforts and locate areas for growth.
Formula = ((Current Premiums – Previous Premiums) / Previous Premiums) * 100
2. Loss Ratio
The Loss Ratio is a critical KPI that measures the ratio of claims paid to premiums earned. It’s one of the most important measures of underwriting success. In 2019, the loss ratio for the US property and casualty insurance industry was 62.8%, according to the National Association of Insurance Commissioners. A reduced loss ratio indicates better underwriting and increased profits.
Formula: (Claims Paid / Premiums Earned) * 100
3. Combined Ratio
The Combined Ratio measures how profitable an insurance company is as a whole. The expense-to-loss ratio is taken into account. Generally, a lower combined ratio indicates greater profitability, whereas a higher ratio may point to inefficiencies.
Formula: (Loss Ratio + Expense Ratio) * 100
4. Loss Reserve Adequacy
It is essential to set aside enough money to cover potential claims. An important indicator of fiscal health is the sufficiency of the loss reserve. The total loss reserves for US property and casualty insurance companies amounted to $729 billion in 2020. The ability to satisfy financial obligations and avoid financial difficulties depends on having adequate loss reserves.
Formula: (Loss Reserves / Total Claims) * 100
5. Expense Ratio
The Expense Ratio measures business effectiveness by comparing costs to revenue. A reduced expense ratio indicates that more efficient operations can boost profits. In the United States, insurance companies reported an average expense ratio of 27.1% in 2019, according to Statista.
Formula: (Operational Expenses / Premiums Earned) * 100
6. Solvency Ratio
The Solvency Ratio evaluates how well an insurer can pay its claims. Maintaining client confidence and satisfying government regulations, both depend on maintaining solvency.
Formula: (Total Assets / Total Liabilities)
7. Investment Yield
Insurance companies often invest in premiums to generate additional income. Optimizing investment yield is essential for maximizing returns on reserves.
Formula: (Investment Income / Total Investment Assets) * 100
8. Underwriting Profit Margin
This key performance indicator measures how profitable underwriting is. In 2021, Statista revealed the global insurance industry saw underwriting profits of over $40.6 trillion. Underwriting activities are lucrative if there is a positive underwriting profit margin.
Formula: (Premiums Earned – Claims Paid – Operational Expenses) / Premiums Earned * 100
9. Policy Renewal Rate
When a policy is up for renewal, the Policy Renewal Rate is calculated to see what proportion of policies are renewed. A study by Bain & Company found that increasing customer retention by just 5% boosts profits by 25-95%. One of the most important metrics for measuring success is keeping customers. High customer renewal rates indicate both delighted clients and consistent income.
Formula: (Renewed Policies / Total Policies Expiring) * 100
10. Customer Acquisition Cost
The price of customer acquisition is tallied using this key performance indicator. Marketing and sales efforts can’t be optimized without it. Knowing how much it costs to bring in new clients is essential for setting marketing budgets and measuring campaign success.
Formula: (Total Marketing and Sales Costs / Number of New Customers)
11. Customer Churn Rate
The percentage of policyholders who do not renew their policies is the customer churn rate. Harvard Business Review reports that reducing customer churn by just 5% can increase profits by 25-95%. Understanding the causes of customer churn is essential for developing effective retention strategies and better serving existing customers.
Formula: (Lost Customers / Total Customers at the Start of the Period) * 100
12. Policyholder Satisfaction
Customer satisfaction can only be gauged by hearing directly from policyholders. Customers who are pleased with their service are more inclined to renew their policies and advocate for the insurer to others.
Formula: (Satisfied Customers / Total Survey Respondents) * 100
13. Channel Effectiveness
The Channel Effectiveness Key Performance Indicator assesses the efficiency of policy distribution channels. The most effective distribution channels can be narrowed in to concentrate marketing efforts better.
Formula: (Policies Sold via Channel / Total Policies Sold) * 100
Claims Management KPIs
14. Claims Processing Time
Processing of Claims Time is the unit of measurement for insurance claims. In most cases, quicker turnaround times mean happier customers. Effective claims handling is crucial to maintaining happy and loyal patrons. On average, the processing time for insurance claims can take anywhere from 30 to 60 days, as the Insurance Information Institute reported.
15. Claims Frequency
The Claims Frequency metric quantifies a claim’s filing frequency. It’s a crucial metric for measuring risk and setting prices. Knowing how often claims are filed is essential to manage risk and set reasonable premiums.
Formula: (Total Claims / Total Policies in Force)
16. Claims Denial Rate
The percentage of claims that are rejected or unpaid is recorded by the Claims Denial Rate. It is crucial to guarantee fair and accurate claims processing, as a high denial rate may signal issues in claims management.
Formula: (Denied Claims / Total Claims) * 100
17. Loss Severity
Loss Severity calculates the typical expense of claims. This key performance indicator can gauge the effect of major losses on profitability. Effective risk management and pricing policies rely on an appreciation of loss severity.
Formula: (Total Claim Amount / Total Claims)
18. Loss Retention Ratio
The Loss Retention Ratio measures the insurance company’s share of claims before any reinsurance is applied. Reinsurance and knowing your retention ratio are essential for your financial security.
Formula: (Retained Claims / Total Claims) * 100
19. Claims Settlement Ratio
To see how quickly claims are being resolved, look at the Claims Settlement Ratio. Effective claims processing is essential for retaining loyal customers. In the United States, insurance companies’ overall claims settlement ratio is approximately 96%, indicating customer trust in the industry.
Formula: (Settled Claims / Total Claims) * 100
20. Underwriting Efficiency
Evaluating the effectiveness with which underwriters assess and price risks requires assessing underwriting efficiency. It’s crucial to the company’s continued success. The relevant risks are taken, and premiums are set by competent underwriting.
Formula: (Underwriting Expenses / Premiums Earned) * 100
Digital Transformation KPIs
21. Digital Transformation Progress
This key performance indicator tracks the rate at which digital technology is integrated into the insurance industry. Accenture reports that 75% of insurance executives believe that artificial intelligence (AI) is helping their businesses increase profitability. The insurance business must undergo a digital transformation to maintain a competitive edge in today’s digital-first world.
Formula: (Digital Transformation Achievements / Total Transformation Goals) * 100
Risk Management KPIs
22. Reinsurance Utilization
The Reinsurance Utilization Key Performance Indicator measures how often and how much risk is ceded to reinsurers by the insurer. According to Research and Markets, the global reinsurance market is estimated to reach a value of $348.6 billion by 2026. Maintaining financial security and minimizing risk exposure requires careful reinsurance management.
Formula: (Reinsured Claims / Total Claims) * 100
Compliance and Security KPIs
23. Regulatory Compliance
Maintaining conformity with insurance industry norms and regulations is essential. By maintaining compliance, a company can avoid costly legal disputes and fines.
24. Cybersecurity Preparedness
In this day and age of rising cyber dangers, assessing levels of cybersecurity preparation is crucial. Cybersecurity Ventures predicts global cybercrime costs will reach $10.5 trillion annually by 2025, underlining the need for preparedness. In this age of digital risks, it is crucial to take measures to safeguard consumer information and prevent data breaches.
Product and Sales KPIs
25. Average Policy Value
This key performance indicator assesses the general worth of all insurance products. It’s useful for picking out potential upsell and cross-sell opportunities. Finding growth prospects and fine-tuning product offerings are easier when you know the average value of insurance.
Formula: (Total Policy Value / Total Number of Policies)
26. Sales Growth Rate
The sales growth of an insurance provider is the focus of this performance indicator. Using this statistic effectively requires splitting it in half. You may learn more about your business’s health by tracking the number of new policies sold and the number of existing policies renewed.
Formula: ((Current Sales – Previous Sales) / Previous Sales) * 100
27. Retention Rate
The process of attracting new customers can be time-consuming and expensive. In reality, the renewal of an existing policy is far more lucrative for businesses. This crucial indicator measures the rate of policy renewal compared to the rate of new policy issuance.
Formula: ((Number of Policies in Force at the End of a Period – Number of Policies Acquired During the Period) / Number of Policies in Force at the Start of the Period) * 100
28. Policies In-Force per Agent
This insurance statistic isn’t designed to be used with a particular agent in mind. It calculates this ratio by dividing the total number of active policies by the number of agents on staff. Insurance companies can supplement customer loyalty and revenue growth data with this key performance indicator.
Formula: (Total Number of Policies In-Force) / (Total Number of Agents)
Insurers may improve operations, customer service, financial stability, and risk management with the help of these key performance indicators. Insurance firms may successfully meet the difficulties and capture the opportunities of the insurance sector in 2024 and beyond by harnessing these KPIs and tracking them via efficient dashboards.
How to Define the Best Insurance KPIs?
To develop effective insurance KPIs, extensive knowledge of each process and interdependencies is required. The insurance industry is typically more autonomous, making data consolidation more of a challenge. Here are some things to keep in mind when deciding on the finest insurance KPIs:
Determine the Objectives – Despite its apparent simplicity, identifying a goal and monitoring progress through understanding it is important to developing effective insurance KPIs.
Consider a Holistic Approach – It’s important to consider the organizational characteristics that affect the metric rather than the factors exclusive to the business process or controls because the KPIs may not affect a single business unit or department. The method allows for the establishment of data controls.
Centralize Data- Insurers have difficulty gaining much-needed insights due to data silos. To make better decisions, you should start by examining your data sources and building a single data source.
Pre-built Templates – Time to market and time to insights are two areas where most modern organizations wish to see improvements. The insurance industry is not an exception. You may save time and get better results by using pre-made visualization templates.
How Can Brickclay Help to Maximize Success?
KPIs will be the lifeblood of insurance firms. Insurers may use these measures to grasp performance, make more informed strategic decisions, and keep up with an ever-evolving industry. Effective monitoring that tracks these KPIs is crucial to the industry’s success because it provides a real-time snapshot of an insurer’s health and performance. These top 28 KPIs can help insurance firms face difficulties and grasp opportunities in the dynamic insurance market.
Is your insurance company prepared for the future? With the support of Brickclay, an industry pioneer in business intelligence, you can unleash the potential of data to propel your business to new heights. Contact us today for personalized solutions tailored to your unique needs.