February 13, 2012 by Canadian Underwriter
Insurers must consider the associated risks of lowering expenses and seeking efficiencies, as it may cost them in loss control or hamper their ability to meet consumer expectations, a report from Conning Research & Consulting says.
In ‘Property-Casualty Expense Management: Trends and Guiding Principles for Holistic Benchmarking,’ Conning says it’s crucial for insurers to not rely solely on expense management to improve performance.
“Property casualty insurers today face compressed underwriting and investment returns, and understandably look to expense control to improve performance,” said Clint Harris, analyst at Conning Research & Consulting.
“Yet there are many levels of risk associated with seeking expense efficiency for the insurer, particularly in loss control and in meeting ever-changing customer expectations. In fact, our analysis indicates a significant relationship between higher expense ratios and lower loss ratios in superior performers.”
In order to be successful in expense control, ongoing expense measurement against both competitors and customer value considerations are crucial, as both are moving targets, said a release from Conning.
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