Operations Management in Insurance Sector

Topics: Insurance, Risk, Loss ratio Pages: 3 (869 words) Published: March 27, 2013
Operations Management in
Q. How to measure operational efficiency in service industry? Ans-Insurance companies use KPI indicators to measure operational efficiency and ensure optimum standards. The secret to success for an insurance company is providing the right product, having the right people selling and managing risks associated with it. Insurance organizations use and act on metrics to avoid unnecessary risks. Following are the Key Performance Indicators (KPI) that insurance companies use to measure operational efficiency. Policy Sales Growth Ratio

It measures policy sales growth over a set period of time. It is increase in the number of clients over a specified period. It is helpful to gain insights into policy sales trend. The higher this percentage, the better it is. Policy Sales Growth =

(Current period sales revenue – previous period sales revenue)/previous period sales revenue Claims Ratio
It is defined by claims in a period divided by earned premium in the period. It helps to know the risk of claims and effectiveness of the policy. The ratio needs to be analyzed carefully to understand the risk associated. A higher ratio indicates too many claims compared to premiums and it isn’t good for the company. A lower ratio may indicate difficulty claiming which would lead to customer dissatisfaction. Claims Ratio =

Total claims per period/Total earned premiums per period
Percentage of Total Lapses
It measures the total number of missed payments in a period compared with the policies sold. It helps in understanding why lapses are occurring and stop them from occurring at a high frequency. A high percentage might be because of inefficient operations such as problems in the payment process. A company constantly improves its operations to decrease the percentage of lapses in each period. Percentage of Total Lapses = Lapses/Policies Sold

Average Time to Settle a Claim
It measures the time it takes settle claims. A...
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