What Are the Key Performance Indicators for Insurance Companies?
A Key Performance Indicator is a performance measurement that enables business owners and potential investors to determine the effectiveness of a company’s operational strategies. There are some KPIs that apply to all businesses such as sales trends, but some KPIs are specific to an industry. Insurance companies, for example, must focus on metrics, such as the cost of claims and the ratio of clients that have filed claims, compared to clients that haven’t, which aren’t applicable to other industries. Insurance companies and prospective investors must choose the right KPIs to ensure that they are analyzing the factors that will most determine the future success or failure of the company.
The more claims that an insurance company pays, the less profit that company will make. So it’s essential to measure the average cost per claim, based on each type of claim the company pays. This provides a clear picture of the type of claim that has the highest risk per policy, which can help companies increase the prices for those specific policies. This KPI is typically analyzed on a bi-annual or annual basis and is calculated by dividing the cost of monthly claims by the number of claims. For example, if the total cost of claims per month is $5,000, and the number of claims totaled 50 the average cost per claim KPI would be $100 for that claim category. In a large insurance company, there could be 20 different average cost per claim KPIs.
Claims that drag on for months tend to cost an insurance company more money, so measuring the average time to settle a claim, a KPI provides valuable information about settlement times for different types of claims. This KPI is calculated by dividing the number of days it took to settle all claims in each claim category by the total number of claims. If the KPI for the average time to settle an auto claim is too long, insurance company executives can adjust their claims process to speed things up and to cut expenses.
The incurred claims ratio KPI is calculated by dividing the total claims in a specific period of time by the total earned premiums during that same period of time. For example, if an insurance company is analyzing the incurred claims ratio KPI for a six-month period and the total claims were 75 and the total earned premiums were $25,000, the incurred claims ratio KPI would be .003. High or low values require further inquiry, because if the value is lower than anticipated, that typically means that earned premiums are down, and if the value is higher than anticipated, that typically means there are too many claims, relative to earned premiums for insurance products.
Selling new policies is an essential revenue generator for insurance companies, so analyzing the policy growth KPI provides a benchmark for how many policies the business sold versus the targeted policy sales goal for a specific period of time. Insurance companies can calculate this KPI by subtracting the current period sales revenue from the previous period sales revenue and dividing the total by the previous period sales revenue. This provides a clear picture of whether the company is adding enough new policies and clients to meet sales goals.
Insurance companies can’t succeed without retaining their existing customers, so the customer experience KPI provides quantitative results about the level of customer satisfaction. This information is typically obtained by a phone questionnaire or online questionnaire related to specific products and services the insurance company offers.