What Is an Insurance KPI?
An insurance Key Performance Indicator (KPI) or metric is a measure that an insurance company uses to monitor its performance and efficiency. Insurance metrics can help a company identify areas of operational success, and areas that require more attention to make them successful. These KPIs are often used to compare companies in the insurance industry against each other to see which would be a better investment.
KPIs and Reporting in the Insurance Industry
The insurance industry is large and complicated. Insurance KPIs and reporting can be just as complicated. Most of the time, thinking about KPIs and reporting will give you a headache. At insightsoftware, we like life to be simple. As such, this blog post will break the insurance industry and its KPIs down into small bite sized pieces that you can easily digest. We will go over insurance KPI examples for the sales, claims, and finance departments, as well as how you can streamline your reporting process using insurance reporting solutions.
Sales KPIs for the Insurance Industry
Sales are the backbone of the insurance industry. You can have all the products you want, but without someone selling them, you can’t make a profit. This section will go over the insurance KPI metrics that your company should be applying to its front-line staff:
- Quote Rate – The quote rate is the most fundamental insurance key performance indicator that can be used to gauge staff performance. The quote rate measures how many quotes a staff member has been able to provide compared to the number of leads they have contacted.
- Quota Rate – The name of this insurance KPI only differs by one letter from the previous, but measures something even more important than the quote rate. The quota rate is used to measure the performance of staff in meeting their sales targets. It is important that a company doesn’t set the quota so high that it is unattainable, or staff may feel demoralized and unmotivated. This rate can help set an appropriate quota.
- Contract Rate – The contract rate insurance metric is straight forward. This KPI measures how many leads a staff member was able to contact vs. the total number of leads they reached out to.
- Number of Referrals – This insurance KPI measures how many new clients were referred by existing clients against the total number of new clients over a given time period. This insurance metric helps gauge two different aspects. The first is how satisfied your existing clients are with your products and services. The second is how much of the company’s growth is organic as opposed to being advertisement driven.
- Bind Rate – The bind rate insurance KPI is useful as it measures individual performance of staff, showing who has the skills to close a deal. The bind rate is the percentage of quotes that are converted into legally binding policies.
- Percentage Pending – This is a typical insurance KPI used to evaluate how efficiently the team is working together. This measures how many policies at any given time are pending approval as a percentage of the total number of policies established. A high percentage pending can indicate a bottleneck in your company’s workflow.
- Sales Growth Rate – This insurance performance metric measures how much a company’s sales have increased (or decreased) over a specific period. This metric is best utilized when broken into two different categories. It should be used to measure the number of new policies as well as the number of policy renewals, as these two figures can give you more insight into how the business is performing.
- New Policies per Agent – You want to know who your top performing agent is, don’t you? This insurance metric helps companies keep track of who their star performers are, as well as bringing about some healthy competition between agents.
- Retention Rate – Obtaining new clients can be a costly and time-consuming process. In fact, it is much more profitable for companies if they can renew an exiting policy. This key insurance metric tracks the percentage of policies that are renewed against the number of new policies issued.
- Policies In-Force per Agent – This insurance metric isn’t targeted at the agent specific level. It takes the total number of policies in-force and divides it by the total number of agents on staff. This insurance KPI can be used in conjunction with the retention rate metric and the sales growth rate to try and identify where inefficiencies are occurring.
The front-line staff are an integral component to any insurance company. However, they only represent one component of an insurer. These examples of sales KPIs in the insurance industry should give you a place to get started when analyzing your company’s performance. On the other hand, if your company already has quite a few insurance performance indicators in place, maybe it is time to create some new ones tailored to your specific operating structure. We can help you with that, too.
How to Develop a Key Performance Indicator for an Insurance Company
As we stated previously, the insurance industry is large and complicated. As such, you might find yourself looking for different performance metrics to evaluate your company’s performance. To completely tailor a KPI to your needs, you can create your own. This section will go over what should be taken into consideration when developing a new key performance indicator for an insurance company.
- Have a goal. This is fundamental. You can’t create a KPI without having a clear goal in mind. This goal cannot be subjective. It needs to be numerically assessable.
- Take a holistic approach. When thinking about your KPI, think about the impact the insurance KPI will have on the company. Will it impact other business units? Or does it help the whole company move together as a homogenous unit?
- Align with company processes. Don’t create a KPI that would be resource intensive. Try to integrate the performance metric with the existing company framework. Not only will this reduce the resource burden, it will help to quickly identify inefficient processes.
- Create a company culture. This might sound like a lot to think about when creating a KPI, but it can be helpful. Consider the mentality of your staff at the company. Create an environment in which the KPI positively impacts the workplace and encourages/rewards people for doing things that will benefit the company.
- Compiling the data and reporting it. This is one of the most critical aspects of creating a KPI in our opinion. A lot of thought and effort has been put into creating a new insurance KPI and implementing it, but this KPI is only useful if you can track and interpret the data. A KPI dashboard can streamline this process making it very simple and efficient.
- Make informed decisions. This is the whole purpose of implementing insurance key performance indicators. The KPI that you have created should be able to provide the company with insight into their operations, and help the company make informed decisions.
This should give you an idea of what makes a good insurance key performance indicator. Coupled with the top insurance KPIs that we talked about for your sales force, you should be ready to streamline your company. We can’t emphasize enough the importance of using insurance dashboard software to keep track of your KPI performance.
Key Performance Indicators to Use for Insurance Claims
The next large insurance business segment we will explore is claims. Ideally, an insurance company would like to see zero claims, as it would mean that all their policies are returning the maximum profit. However, the world is not an ideal place. Claims are a real part of the business, and insurers are often forced to pay on their policies. Check out these examples of KPIs in insurance that should be out-of-the-box for any insurance dashboard:
- Average Cost Per Claim – In the insurance industry, you are going to have to pay out on claims. That is just the nature of the business. The question is, how much are you going to be paying out? This insurance performance indicator helps estimate this by figuring out the average cost of each claim made. Using insurance reporting software, this data can help an insurer set its rates as well as give an indication of future financial performance.
- Claim Frequency – This key insurance metric measures the likelihood of a loss. It does this by predicting how many claims are to be expected based on the number of policies outstanding. This can help a company manage cashflows, risk exposure, and rate setting.
- Components of Claim Costs (CCC) – This is a key performance metric that the insurance industry relies on heavily. The CCC metric seeks to provide insight into what costs are associated with a claim. The costs are generally associated with the following items: legal fees, time to settle, administration costs, and report delays. This insurance metric can be used to identify inefficient business segments and reduce costs.
- Average Time to Settle a Claim – This might not be an insurance performance metric that you would think of right away. However, it is crucial to any insurance company. The claim settlement time should be used to monitor different policy types as more complicated policies will obviously take longer. However, it is important that companies try to keep the settlement time as low as possible, as it will increase client satisfaction and retention.
- Client Satisfaction – This insurance KPI is a little tricky to implement and measure accurately. Most companies do it somehow through surveys, but this is a somewhat objective measure. Client satisfaction is probably best represented in client retention and policy renewal.
- Problem Resolution Rate – The longer a problem drags on, the more money it will cost your company in resources that could be used for making money. It is important to try to resolve client problems as quickly and efficiently as possible.
- Calls Handled within 24 Hours – This insurance metric is used to determine how efficient and effective a company’s claims resolution team is. This KPI shouldn’t be used entirely by itself. A company should also consider how many calls the team receives.
- Underwriting Cycle Time – This insurance performance indicator measures the number of days it takes the underwriting department of a company to process an insurance policy application. This top insurance KPI can highlight inefficient underwriters, which can have a negative impact on client satisfaction. In the worst-case scenario, the client binds a policy with a different insurer while you are still waiting for you underwriter to finish. This will have wasted the time and efforts of your agents, costing the company money.
- Claims Ratio – The claims ratio is a very powerful insurance metric. It takes the number of claims made and divides them by the amount of insurance premium earned for a specific period. This can give insight into how the business is performing by looking for anomalies. A higher than normal ratio would indicate the potential of fraud, while a lower ratio could indicate people having issues making claims. This metric is best utilized when combined with other metrics to determine the root of the anomalies.
The insurance KPI metrics that we covered in the claims section tend to be fairly data heavy and require a bit of data manipulation in order to gain true insight. This leads us directly into our next section about insurance dashboard software and insurance reporting solutions.
How an Insurance Dashboard Can Streamline Your Reporting
We have gone through a lot of insurance KPI examples. Imagine trying to gather, manage and report all that data. It would be quite a process. In fact, it wouldn’t even seem unreasonable if a company needed an entire team to manage this task. But that is a costly endeavor that could potentially outweigh the cost savings derived from the data. That is why we suggest using something like our insurance BI software. Let’s look at some of the major benefits of using an insightsoftware solution:
- Automated data collection. Our software is able to interface with your existing ERP and automatically extract the data you need for your KPIs and reports.
- Centralized data. Over are the days of transferring files with a USB. All your data is stored in a central location such that you and your team can always access it. This means less time is wasted waiting on people to send you data.
- Prebuilt KPI templates with ERP interface. At insightsoftware, we are proud to provide out-of-the-box business intelligence software solutions. Our prebuilt KPI templates and dashboards can interface with your favorite ERP software to make a seamless process.
- Reports at your fingertips. When you combine automated data collection, centralized data, and prebuilt KPI templates with ERP interface, what do you get? Instant updates. Your boss wants a report two minutes before a meeting? No problem, your report is one click away.
Using an insurance dashboard solution can help streamline you reporting process and identify inefficiencies in your company. In turn, this will improve your company’s financial position. Here are some insurance KPI examples that you can use to monitor your company’s finances.
Financial KPIs for the Insurance Industry
Financial KPIs are at the heart of all reporting. Everyone wants to know how a company is doing financially. However, that doesn’t mean that every industry has the same financial metrics. We have collected some insurance KPI examples that the finance department should be tracking:
- Expense Ratio – How much does it cost you to earn each dollar? How much are your expenses? The expense ratio performance metric compares the company’s total expenses to the premiums it generates over a specific time period. This can help identify if premiums are too low or the company can be more efficient.
- Average Policy Size – This insurance metric measures the total amount of premium collected and divides it by the number of policies issued for a given time period. This can be used to assess a company’s risk profile. Lots of small policies are less risky than one large policy.
- Loss Ratio – No one likes losing, but it happens to the best of us. This insurance KPI divides the total claims payout and divides it by the total premium revenue. A high loss ratio may indicate that policy premiums are set too low.
- Average Revenue Per Client – We can use this insurance metric to determine the maximum amount of money a company is willing to spend to obtain a new client. If a client is overly difficult to obtain, it might not be worth the potential revenue for the company.
- Cost Per Quote – Most agents probably don’t even think about this insurance KPI. It is something that the management team should be keeping track of. The cost per quote takes into consideration all the costs that the company incurs in order to get a quote in front of a potential client.
- Cost Per Bind – This is an insurance metric that often gets overlooked even though it is very important. The cost per bind metric determines the incremental cost of binding a new policy. It essentially represents the price a company pays to obtain a new client.
- Cost Per Bind by Vertical – This insurance KPI builds on the cost per bind metric by breaking things down to a finer resolution. The metric breaks up your cost per bind by their verticals. For example, what is your cost per bind on auto policies vs. travel policies? This can help determine which verticals are more profitable and which are dragging the profits down.
- Net Profit Margin – This is the official measure of “are you profitable.” If your net income isn’t positive, you aren’t making a profit. But, when you do have a net income that is positive, just divide it by the total revenue. This will give you your net profit margin. Above 10 percent is considered very healthy.
- Administrative Costs Per Policy – This is a more detailed version of the expense ratio KPI that we talked about before. This one scrutinizes a specific cost that can really make or break policy profitability. This insurance KPI takes the cost of the policy administration department and divides it by the number of policies outstanding.
We know that this can be a challenging topic to read about, but it is the first step to making change at your company. These changes can help increase staff productivity, reduce client turnover, and drive down the potential for human error.
Still curious about something? Drop us a line. One of our reporting experts at insightsoftware will answer any questions you have regarding insurance reporting software or insurance KPIs.