Insurance key performance indicators (KPIs) are metrics an agency can track to monitor its operations and identify areas for improvement. KPIs provide a clear and objective way to evaluate performance, providing better visibility into profitability, policyholder satisfaction, and operational efficiency.
Overall, KPIs are highly useful when comparing the agency’s current operations against historical performance and against competitors or industry benchmarks. They can be used internally by managers to drive decision-making, as well as reported externally to key stakeholders like creditors, customers, or investors, to showcase financial positioning and efficiency.
20 Important Insurance KPIs to Track
The exact KPIs an insurance agency will track will depend on their unique operations and circumstances. However, there are some general insurance metrics that are widely applicable, which we’ll explore in further detail below.
Claim Resolution Time
- Claims resolution time = Total time to resolve claims / # of claims processed.
One of the most important insurance processes that impacts the policyholder experience and influences retention rates is how quickly insurers can process claims. Regardless of the outcome, policyholders want to quickly know whether their claim has been approved (or not) so they know how to best proceed in their situation.
Claim resolution time is a KPI for insurance companies that measures the average time the agency takes to resolve claims. Tracking this metric can help insurers ensure the timely processing of claims, improving policyholder satisfaction.
Customer Retention Rate
- Customer retention rate = # of retained policyholders at the end of the period / # of policyholders at the beginning of the period.
The customer retention rate reflects the percentage of policyholders who remain with the agency over a certain period of time. A higher customer retention rate signifies lower turnover and better loyalty. With a lower rate, more policyholders are seeking coverage elsewhere.
The customer retention rate can have significant implications on the insurer’s long-term profitability, as it directly correlates to customer acquisition costs.
Loss Ratio
- Loss ratio = Total incurred losses / Total earned premiums.
An insurance agency’s loss ratio is the proportion of premiums collected that they had to pay out as claims. In other words, the loss ratio is a helpful way to determine the profitability of an insurer’s underwriting practices. It can also reflect how effective their risk management practices were, which can inform future strategies to minimize losses.
Expense Ratio
- Expense ratio = Total operating expenses / Total written premiums.
Similarly, the expense ratio is another profitability metric that insurance agencies can measure. It can help insurers track their operational efficiency, ensuring they’re charging high enough premiums to cover their expenses, or if they need to engage in cost-saving strategies.
Combined Ratio
- Combined ratio = Loss ratio + Expense ratio.
The combined ratio combines the loss and expense ratios to determine if an insurer was profitable over a given period. If the combined ratio is less than 100%, it’s a good indicator that the insurance agency is profitable. A ratio greater than 100% signifies they incurred underwriting losses and paid out more in claims and expenses than they received in premiums.
Policy Renewal Rate
- Policy renewal rate = # of policies renewed / # of policies up for renewal.
Very similar to the customer retention rate is the policy renewal rate, which both reflect policyholders’ loyalty and satisfaction. While the two might appear to track the same data, the policy renewal rate differs in that it specifically measures the percentage of policies that are renewed by existing customers within a certain period. In contrast, the customer retention rate tracks the portion of policyholders who remain with the agency, whether they renew the same policy or switch to a different one.
Claims Frequency
- Claims frequency = # of claims / # of insured policies.
It can be helpful to track claims frequency, a KPI for insurance that measures the number of claims filed by each policyholder on average over a specific period. This can provide important insights into the insurer’s risk exposure and claims trends, which can influence future underwriting and risk management decisions.
Average Claim Settlement Time
- Average claim settlement time = Total time to settle claims / # of claims settled.
This insurance metric indicates the average time an agency takes to settle claims. It’s an alternative to the claim resolution time metric previously discussed, representing the length of time between when the claim is initiated and when it’s ultimately settled by the insurance company. Agencies can monitor this metric to determine how efficient their claims management processes are.
Customer Satisfaction Score (CSAT)
- CSAT = # of satisfied customers / # surveyed.
To more accurately assess customer satisfaction, insurance agencies may send policyholders surveys or gather feedback from one-on-one interactions. The portion of satisfied customers out of the total amount surveyed can provide important insights into the agency’s service quality and how well they’re meeting policyholder expectations.
Net Promoter Score (NPS)
- NPS = % of detractors – % of promoters.
Using surveys or direct feedback, insurers can also calculate the net promoter score, which assesses a policyholder’s likelihood of recommending the insurer to others, typically rated on a scale from 0-10. It’s a clear KPI for insurance companies to monitor policyholder satisfaction by comparing the percentage of surveyed individuals who gave a low score compared to those who gave a high score.
Claim Leakage
- Claim leakage = Actual claim payments – Expected claim payments.
Insurance claims fraud is a common issue agencies must deal with, and claim leakage is a critical metric to help determine the losses that were incurred from fraudulent or inefficient claims handling. This metric can shed light on possible improvements needed in the claims process, like if actual claim payments significantly and consistently eclipse the amount the agency expected to pay.
Underwriting Profit
- Underwriting profit = Earned premiums – Incurred losses and expenses.
The expense, loss, and combined ratios can help provide a relative measure of profitability for the agency. However, the underwriting profit metric calculates the dollar value of profit earned by an insurer over a specific period. This can be an important insurance metric to track over time, showing how profits have grown or diminished. Plus, it can support budgeting and financial planning, reflecting the amount of money on hand after accounting for losses and operating expenses.
Policy Lapse Rate
- Policy lapse rate = # of lapsed policies / # of policies.
The policy lapse rate shows the percentage of policies that are terminated or allowed to lapse by policyholders. This is another insurance metric that reflects how well an agency can retain its policyholders, albeit with a more distinct focus on the portion of policyholders leaving the agency.
Growth in Premiums Written
- Growth in premiums written = (Current # of written premiums – Previous # of written premiums) / Previous # of written premiums).
Just like any industry, insurance companies are focused on growth, ensuring they’re able to expand their market share and generate more profit. Tracking the change in the number of premiums written from one period to the next is similar to monitoring revenue growth for companies in other industries, and helps an agency determine if they’re growing or contracting.
Claims Severity
- Claims severity = Total claim payments / # of claims settled.
Claim amounts can vary depending on the nature of the loss event. The claims severity metric determines the average value per claim that’s paid by insurers, providing them with a better way to track the impact of each individual claim.
Operating Ratio
- Operating ratio = Total operating expenses / Earned premiums.
If it wasn’t already apparent, tracking profitability is an important way for insurers to measure performance. It’s a way to determine how effective their risk management practices were, and whether they’re paying more out for claims and expenses than they’re bringing in through premiums. The operating ratio is yet another metric insurers can use to calculate this.
Total Written Premiums
- Total written premiums = Amount of premiums earned.
Another KPI for insurance companies to track is total written premiums, or the number of policies issued, which reflects revenue generated over a certain period. This isn’t a metric that insurance agencies need to calculate, though it’s an important figure that they will monitor over time to ensure they continue to grow operations.
Claim Denial Rate
- Claim denial rate = # of denied claims / # of claims filed.
Not every claim initiated by policyholders is covered by their policies, which should result in a denial by the claims adjuster to mitigate the extent of losses. To track how well the agency is adjudicating claims, they can track the claim denial rate and compare it to industry benchmarks or historical figures. This will help ensure the agency is not loosening its policies and settling claims that should be denied.
Policy Acquisition Cost
- Policy acquisition cost = Total acquisition expenses / # of policies acquired.
Every business is focused on lowering its cost to acquire a customer. In the insurance industry, it’s the cost to acquire a new policy. This includes any sales, marketing, or administrative costs incurred to win a new customer. Agencies may want to compare their policy acquisition cost against the industry average to determine how productive their sales and marketing strategies are.
Return on Equity (ROE)
- ROE = Net income / shareholder’s equity.
Businesses in all industries can track their return on equity, which reflects the profitability of an equity investment. Essentially, it shows the amount of income generated for every dollar the agency receives from shareholders. In general, the higher the ROE, the better.
The Bottom Line
This is not an exhaustive list of all the insurance metrics agencies can track. However, it does provide a good starting point to help insurers monitor and evaluate their performance against their own historical data industry benchmarks. All in all, insurance KPIs provide agencies with the concrete data they need to make informed decisions and enhance operations for better efficiency, profitability, and policyholder loyalty.
Tracking these metrics is only the beginning. When it comes to optimizing operations to improve KPIs and performance data, agencies need industry-leading solutions like Insuresoft’s Diamond Platform to help them compete and drive value in today’s competitive marketplace. With comprehensive solutions for monitoring metrics, insurance businesses gain valuable insights to inform data-driven decisions. The Diamond platform provides a robust framework to evaluate profitability, customer satisfaction, and underwriting performance, helping you drive sustained growth and success in a competitive industry.
If you want to learn more about the Diamond Platform, check out this guide to see how it can help insurance agencies enhance operational efficiency and become more agile in the digital age.
