(Updated 2025)
Efficient claims processing is crucial for insurance companies to provide excellent customer service and maintain a competitive edge. To achieve this, benchmarking key performance indicators (KPIs) is essential as they serve as valuable metrics to measure effectiveness.
As organizations become increasingly data-driven, they are turning to KPIs to keep track of how individuals, departments, and the organization itself are performing.
In this article, we will go over the five key performance indicators (KPIs) you should be tracking in claims management and why benchmarking results can significantly enhance claims processing.
What does KPI mean?
KPI stands for “key performance indicators”, which are data points collected, analyzed, and summarized to assist in decision-making.
Benchmarking helps organizations identify instances of superior performance so they can understand the underlying processes driving success. Once key factors are identified, companies can incorporate best practices into their operations, ultimately improving efficiency and profitability.
Organizations can evaluate their performance and progress toward specific objectives with measurable metrics. By leveraging KPIs, insurance companies can identify areas of improvement, set performance benchmarks, and drive continuous enhancements in their claims processing operations.
What are KPIs in Insurance?
The insurance industry is no stranger to data and analytics. These have driven claims-related business decisions for decades. However, as it is a conservative industry, it often lags behind others in adopting new technologies and implementing innovative techniques. This cautious approach can hinder the industry’s ability to adapt to rapidly changing market demands and emerging risks. KPIs in insurance report benefits similar to those in other sectors, underscoring the importance of implementing fundamental practices. Therefore, embracing technological advancements and modernizing operations are crucial for insurers to remain competitive and responsive to evolving customer needs.
According to Deloitte, in 2022, the U.S. non-life insurance sector experienced a net underwriting loss of $26.9 billion—the largest since 2011—partly due to rising loss costs and challenges in modernizing legacy systems.
KPIs: how can they be used to your advantage?
Benchmarking is important because the process is focused on using evidence and data to illuminate areas for continuous growth and improvement. It can also help you see that, as a business scales, needs will evolve as well. Here are six best practice steps you should take to ensure you get the most out of benchmarking:
- Define Clear Objectives: Before selecting KPIs, it’s crucial to define clear objectives for your claims processing operations. Clear objectives will guide your selection of relevant KPIs that align with your organizational goals.
- Select Meaningful KPIs: Choose KPIs that directly measure the aspects you want to improve. The selected KPIs should be specific, measurable, attainable, relevant, and time-bound (SMART).
- Set Benchmark Targets: Once you have identified the relevant KPIs, next set benchmark targets based on industry standards, internal historical data, or competitor performance. These targets will serve as performance benchmarks and help you evaluate your progress over time.
- Establish Data Collection and Analysis Processes: Implement systems and technologies that capture accurate and comprehensive data related to the selected KPIs.
- Monitor and Track Progress: Consistently monitor and track the selected KPIs to assess your progress towards benchmark targets. Use dashboards or reporting tools to visualize KPI data, making it easier to identify trends, patterns, and areas of improvement.
- Implement Process Improvements: Leverage the insights gained from analyzing KPI data to identify areas for process improvement.
5 KPIs to Benchmark for Better Claims Processing
Now that we know how to take advantage of KPIs, let’s delve into the specific KPIs that are vital for driving improvements in claims processing. Here are the five claims-specific insurance KPIs that will ensure claims processing is taken care of and in constant improvement:
1. Claims Ratio
The claims ratio measures the number of claims relative to revenue. This metric is critical because a higher-than-normal ratio could indicate fraud, while a lower-than-expected ratio might suggest inefficiencies in filing or processing claims.
How to Improve:
- Implement predictive analytics to identify abnormal trends.
- Automate claims validation and fraud detection.
- Use AI to streamline approval workflows.
2. Average Payout Per Claim
Tracking average claim payouts is crucial for financial forecasting. Our clients report that using automated risk and compliance management has streamlined claims administration, reducing manual processing time and improving compliance accuracy by up to 95%. According to Deloitte, paid losses, along with investigative and settlement expenses, accounted for around 70% of U.S. premiums collected in 2020, highlighting the financial burden claims place on insurers.
How to Improve:
- Segment data by policy type, claim severity, and historical trends.
- Deploy AI-driven cost analysis tools.
- Automate policyholder communication for faster settlements.
3. Components of Claim
Payouts are only part of the picture. There are a lot of other costs involved in settling claims — for example, legal and administrative fees. Time to settle and report delays can also increase settlement costs. Knowing the costs of settling a claim can help highlight areas that can be streamlined to improve profits.
How to Improve:
- Implement automated workflows for quicker settlements.
- Minimize human involvement by digitizing claim submission.
- Use real-time tracking dashboards for cost transparency.
4. Average Time to Settle a Claim
This is the most critical indicator given that a high average settling time is often a reason for people to leave an insurance company.
How to Improve:
- Optimize first notice of loss (FNOL) to reduce operational workload.
- Implement straight-through processing (STP) for simple claims.
- Utilize predictive modeling to identify fast-track claims.
5. Claims Processed Per Employee
This efficiency metric can provide insights into operational procedures and help drive faster settlement times to ensure client satisfaction. This information is useful to identify employees who might be causing bottlenecks, and offer them the necessary coaching and training.
How to Improve:
- Identify underperforming areas with data-driven insights.
- Offer continuous training to claims adjusters.
- Automate document collection and verification.
Start taking advantage of Benchmarking today
As we can see, KPIs are essential tools for monitoring and improving claims processing operations. By selecting meaningful KPIs, setting benchmarks, and leveraging advanced analytics, insurers can enhance their efficiency, reduce costs, and improve customer experience.
Benchmarking provides objective performance analysis, allowing insurers to optimize tools and streamline claims workflows. Within the insurance industry, benchmarking in claims management is essential for understanding the effectiveness of automation, fraud detection, and operational efficiency.
Remember, the key to success is not just copying processes but innovating solutions to create the best outcomes.
Terra is up to the challenge
When it comes to establishing KPIs and measuring success, Terra is the ideal partner. Its benchmarking tools generate detailed reports and dashboards, providing real-time insights into bottlenecks, inefficiencies, and lower-performing claims indicators.
- Automate claims workflows.
- Reduce claim settlement times.
- Optimize fraud detection rates.
- Enhance customer experience through real-time claim tracking.
See what Terra does for yourself by getting together with our team.
