Best's Review


At Large
Transforming Auto Claims

Claims maturity follows a three-stage model.
  • Bill Pieroni
  • October 2020
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Over the last 10 years, personal auto insurance rates have decreased in real terms, while the industry has experienced deteriorating combined ratios, primarily driven by loss expenses. On average, auto insurers have spent roughly 77 cents of every premium dollar on claims—yet less than 2.5% of premium annually on claims technology.

Some insurers, however, have recognized the value potential of claims transformation, and have invested to achieve superior levels of “claims maturity.” By developing key claims capabilities and aligning business and claims strategies, these initiatives have overwhelmingly driven positive financial outcomes. In fact, insurers with high levels of claims maturity achieved combined ratios nearly 5% better than the industry average.

ACORD recently studied the 200 largest U.S. P/C insurers, focusing on those with personal auto as the largest part of their book. We classified them by financial performance as Superior, Market Average, or Inferior carriers. We found that virtually all of the Superior performers—and none of the Inferior—had achieved claims maturity through thoughtful, disciplined transformation. Superior insurers demonstrated pure loss expense ratios over 20% lower than the industry as a whole, accompanied by 3% lower loss adjustment expense.

Achieving and sustaining claims maturity follows a three-stage model. First, the baseline is ensuring compliance with contractual and regulatory requirements. Next, transformation efforts focus on the optimization of all three capability components—process, organization and technology. Finally, successful insurers achieve full alignment of strategic intent and capabilities. At this level of maturity, they have implemented an overall business strategy and a complementary, aligned claims strategy, enabled by digital transformation.

Insurers often choose to focus on one or more of the fundamental overall strategic options: Operational Excellence, Customer Intimacy, Product Leadership, and Innovation. Their strategies for handling claims in particular can be segmented into three categories:

• Service-oriented Accepting higher loss expenses to support higher levels of customer satisfaction, retention, and cross-sell.

• Balanced Adopting a fair approach and hewing to a middle ground, balancing customer satisfaction goals with loss cost targets.

• Conservative Prioritizing lower loss expenses through stricter claims handling.

The most common combination among Superior performers was Customer Intimacy with a Service-oriented strategy. These insurers viewed claims not as a necessary evil, but as an opportunity to enhance customer loyalty and retention.

The best loss ratios, however, were associated with Product Leadership and a Balanced claims strategy. By offering highly targeted and differentiated auto policies, these insurers were able to adopt a somewhat stricter approach to claims, without negatively impacting net results.

The lowest-performing combination was an Operational Excellence business strategy—put bluntly, price competition—coupled with a Conservative claims strategy. With significant pricing pressures in the marketplace, and thin auto margins, these insurers were unable to exploit operational efficiencies enough to overcome customers' dissatisfaction with their parsimonious claims philosophy.

Success in claims transformation is neither easily achieved nor sustained. Ten years ago, 26% of insurers qualified as Superior performers in personal lines—in the last three years, this has fallen to 16%. Transformation requires vigilance, discipline and ongoing investment to maintain competitive advantage. For auto writers who achieve and maintain claims maturity the benefits are material.

Best’s Review contributor Bill Pieroni is the president and CEO of ACORD. He can be reached at

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