Combined Ratio

Related KPIs

Combined Ratio Interpretation

A low Combined Ratio reflects effective underwriting and cost management, while a high ratio indicates potential inefficiencies or claims issues. Ideal targets typically fall below 100%, signaling profitability and operational effectiveness.

• Below 95% – Strong performance, indicating effective cost control
• 95%–100% – Break-even; requires scrutiny of claims and expenses
• Above 100% – Underwriting losses likely; immediate action needed

Combined Ratio Benchmarks

• Global insurance industry average: 98% (Insurance Information Institute)
• Top quartile property and casualty insurers: 92% (A.M. Best)
• Life insurance sector average: 95% (S&P Global)

Common Pitfalls

Many organizations misinterpret the Combined Ratio, overlooking underlying factors that distort its accuracy.

• Failing to account for reserve adjustments can mislead stakeholders. Inaccurate reserves inflate the ratio, masking true financial health and operational efficiency.
• Neglecting to analyze claims trends leads to poor forecasting accuracy. Without understanding emerging risks, companies may set inadequate premiums, further deteriorating the ratio.
• Overlooking administrative costs skews the ratio. High operational expenses can inflate the Combined Ratio, suggesting inefficiencies that may not be apparent without detailed variance analysis.
• Relying solely on historical data ignores market changes. A static approach to the Combined Ratio can result in misalignment with current business outcomes and strategic goals.

Improvement Levers

Enhancing the Combined Ratio requires a multifaceted approach focused on both underwriting and operational efficiencies.

• Implement advanced analytics to refine underwriting processes. Data-driven decision-making can improve risk assessment and pricing accuracy, leading to better financial ratios.
• Streamline claims processing to reduce costs and improve customer satisfaction. Faster resolution times can enhance operational efficiency and lower claims expenses.
• Regularly review and adjust reserve levels based on emerging trends. Proactive reserve management ensures that the Combined Ratio reflects true financial health.
• Invest in employee training to enhance underwriting skills. Well-trained staff can better evaluate risks, leading to improved profitability and a healthier Combined Ratio.

Combined Ratio Case Study Example

A mid-sized insurance provider, InsureCo, faced challenges with a Combined Ratio hovering at 105%. This situation strained profitability and raised concerns among stakeholders. To address this, the CEO initiated a comprehensive review of underwriting practices and claims management. The company adopted predictive analytics to assess risk more accurately, allowing for better premium pricing. Additionally, InsureCo streamlined its claims process, reducing resolution times and enhancing customer satisfaction.

Within a year, InsureCo's Combined Ratio improved to 95%, unlocking additional capital for growth initiatives. The company reinvested these savings into technology upgrades and employee training, further enhancing operational efficiency. This strategic alignment led to a stronger market position and improved financial health. InsureCo's success story illustrates the power of leveraging the Combined Ratio as a key figure in driving business outcomes.