KPIs to Improve P&C Insurer Profitability and Risk Management

“If you can measure it, you can manage it” - Peter Drucker

The foundation of any property & casualty (P&C) insurance carrier rests on two main pillars: financial performance and operational effectiveness. To ensure sustainable and profitable growth, carriers need to closely monitor several key metrics that measure their ability to manage risk, optimize operations, and satisfy customer demands. These are important performance measures that can be categorized into two main themes: (a) Profitability & Risk Management and (b) Operational Efficiency & Customer Satisfaction. In this blog, we will dive into significant key performance indicators (KPIs) under each theme.

Profitability & Risk Management

Maintaining profitability while effectively managing risk is crucial to a carrier’s financial stability and long-term sustainability. These factors provide a clear picture of a carrier's ability to price premiums appropriately, control expenses, and manage claims – all essential for ensuring a stable balance between risk exposure and financial returns. By closely monitoring these KPIs, carriers can gauge the effectiveness of their underwriting strategies, improve their capital management, and enhance their overall resilience against unexpected losses. Below are several critical metrics that guide carriers in making data-driven decisions to sustain growth and stability:

• Loss Ratio measures the proportion of premiums paid out in claims, calculated as incurred losses divided by earned premiums. A lower loss ratio indicates better profitability because fewer losses are incurred compared to premiums earned. The loss ratio can be measured for each line of business, such as Homeowners or Commercial Liability line, or aggregated for all products combined.
• Expense Ratio refers to the insurer's operational expenses as a proportion of premiums earned. A lower expense ratio will denote that more efficiency and profitability exist in managing insurance operations.
• Combined Ratio is the sum of the loss ratio and the expense ratio, providing a comprehensive view of overall profitability. A combined ratio below 100% indicates an underwriting profit, while a ratio above 100% indicates a loss.

• Operating Ratio adds the combined ratio to the investment income ratio, offering a complete view of profitability. A low operating ratio indicates that the company is performing well in both underwriting and investment operations.
• Retention Ratio is the percentage of policies an insurer retains at the time of renewal. A high retention ratio indicates customer satisfaction and reduces the acquisition costs for new customers.
• Risk-Based Capital (RBC) Ratio measures the adequacy of the carrier's capital against its risks. A high RBC ratio indicates financial stability in the face of unexpected losses.
• Return on Equity (ROE) is a profitability measure that shows how effectively an insurer uses shareholder equity toward the generation of profits. The higher the ROE, the greater the indication of strong financial performance and efficient use of capital.
• Investment Yield is the return an insurer generates from its investment portfolio as a percent of invested assets. The overall profitability is enhanced with a higher investment yield in a low-loss or low-expense environment.

Operational Efficiency & Customer Satisfaction

Operational efficiency and customer satisfaction are complementary metrics for insurance carriers. Efficient processes and great customer service continue to be the key link in the retention of policyholders for the sustainability of their business and, therefore, their competitiveness. A smooth claims process decreases operating costs while also increasing customer trust and loyalty. The following metrics help carriers manage costs while keeping policyholders satisfied:

• Time to Issue Policy measures the time it takes to issue a policy from the receipt of an application, including the time for quoting and revisions. Faster issuance times reflect higher operational efficiencies and improved customer satisfaction.
• First-Contact Resolution (FCR) shows the number of resolutions provided during the first contact with a customer. A higher FCR suggests that customer support processes are effective, resulting in greater customer satisfaction and loyalty.
• Customer Retention Rate measures the percentage of customers renewing their policies. A high retention rate means satisfactory service and a loyal clientele, reducing the need for costly customer replacements.
• Net Promoter Score (NPS) quantifies how willing customers are to recommend one insurer over others. A high NPS reflects positive customer experiences and brand loyalty, which translates into increased growth through word-of-mouth.
• Claims Processing Time is the average time taken for the processing and settling of any claim. Faster processing of claims leads to greater customer satisfaction with quicker problem resolution.
• Automation Rate measures the number of operations automated or the operational times that are automated compared to those performed manually. A higher automation rate means there was a greater utilization of technology for the operational efficiency, which results in fewer errors.
• Customer Lifetime Value (CLTV) is a fundamental metric that determines the total revenue an insurer can expect from a customer over the course of their relationship. A higher CLTV demonstrates good retention and satisfied customers, providing long-term financial benefits to the carrier.
• System Uptime measures the proportion of time that a carrier’s policy administrative system (PAS) or claims processing system are operational and available to employees and customers. Higher uptimes ensure smooth functionality and minimize customer frustration due to downtime or technical issues.

The Positive Impact of KPIs for Securing Reinsurance

To attract a reinsurance carrier, it is crucial to demonstrate financial stability and sound risk management. This can be done by sharing key metrics like loss ratio and combined ratio, which show that the carrier is handling claims smartly and staying profitable.

Highlighting capital reserves and solvency ratios also proves that the carrier has sufficient funds to cover unexpected claims. Sharing how a carrier assesses risks, like with catastrophe models or portfolio diversification, helps reassure the reinsurer that the carrier is minimizing big losses.

On top of that, demonstrating a carrier’s operational efficiency—such as how fast and accurately they process claims—and their use of technologies like automation to streamline processes is always beneficial when engaging with a reinsurer. Demonstrating strong underwriting practices, low policy lapses, and positive experiences with other reinsurers can strengthen trust. Compliance data, audit reports, and a focus on operational efficiency further establish the carrier as a reliable partner.

Improving Employee Culture Through Transparent KPIs

Having transparent KPIs leads to a higher morale and a healthier work environment because when an insurance carrier operates on consistent and routine KPIs, employees have a more profound understanding of what is expected from them and how their performance is contributing to overall company goals. This clarity reduces unnecessary confusion and tension that could lead to frustration. Employees feel more in control when they can monitor their own activities and see real improvements in those areas. The acknowledgment of good performance through KPIs also serves as a motivator since employees feel their efforts are valued. Ultimately, a metrics-driven culture inspires growth, support, and teamwork at all levels, building a more positive atmosphere in the workplace.

Getting the Data to Measure KPIs

Proper reporting of KPIs requires data from a wide range of sources, both internal and external. Claims management systems should be considered the most significant source because they retain all the key information on claims frequency, claims severity, and processing times, all of which are critical for assessing operational efficiency and customer satisfaction. Underwriting systems provide information on policy lapse and renewal rates, as well as their profitability, hence enabling the assessment of underwriting performance. Financial reports are another vital source, as they contain data on loss ratios, expense ratios, combined ratios, and ROE, which are all crucial determinants of profitability and risk management. Customer Relationship Management (CRM) systems house a treasury of customer data, including retention rates and NPS for the measurement of customer satisfaction and loyalty.

Some operational KPIs to consider include Time to Issue Policy and Automation Rate. These can be tracked in workflow management internal systems and IT operations-handling systems. To gather both quantitative measures of satisfaction and qualitative insights into engagement, employee and customer feedback can be collected through surveys. Additionally, audit reports and regulatory filings are other important sources, but must comply with industry standards. Benchmarking against external market data can provide an opportunity to measure performance against industry peers, track market share, and assess customer acquisition costs. Utilizing these various data sources allows an insurance carrier to monitor and enhance its performance in a holistic and informed way.

Once data sources are identified, pulling data on a regular basis, calculating KPIs, and displaying them on dashboards is vital to keep both the dashboards and the company dynamic and responsive.

Conclusion

Effective insurance carrier dashboards are all about transforming large chunks of data into meaningful insights that can be acted upon. If they focus on the right KPIs, integrate reliable sources of data, and leverage user-friendly business intelligence tools, carriers will have deeper insights into their operations. Interactive, well-designed, automatically updated dashboards can provide real-time feedback related to underwriting performance, claims processing, and customer satisfaction. This helps carriers make informed decisions toward better efficiency, profitability, and risk management.

When tested and validated, these dashboards become powerful tools that enable teams at all levels to better monitor performance against objectives and identify opportunities for improvement. More importantly, these data visualizations enhance transparency and foster a data-driven culture within the organization. Investing in high-quality dashboard creation leads to better decision-making, increased operational efficiency, and a stronger competitive position in the insurance industry.

Tracking and Leveraging KPIs with Apoorva Insurance

Apoorva Insurance provides affordable products and services in the P&C insurance industry. With 80+ employees, Apoorva services AAIS Members for all lines of business. Apoorva migrates carriers and MGAs from other rating bureaus to AAIS’s forms and manuals. Learn more about how Apoorva Insurance can support your business at Apoorvainsurance.com.