The third in a series of commentaries addressing the combined ratio problem facing the global insurance industry.
The insurance industry faced an average combined ratio of nearly 102% exiting 2023. And according to widely accepted industry estimates, approximately 15% of P&C claims are closed with missed recovery opportunities. That represents a cost of between £12-16 billion annually, with some calculations putting the cost at closer to £24 billion. Since those missed opportunities directly impact the bottom line, and ultimately the combined ratio, it stands to reason that more effective liability determination and recovery can have a profound impact on an insurer’s bottom line.
As an industry we have also seen that a strategy that relies only on raising premiums is not enough to have the desired effect on the combined ratio. Furthermore, focusing solely on increasing premiums also creates the real risk of driving customer dissatisfaction if policyholders believe they are being treated unfairly. This can create churn and the new problem of replacing top-line revenue and consumer duty complications. As such, applying best practices to the liability determination and recovery process represents an excellent opportunity to shave points off of the combined ratio.
Using artificial intelligence (AI) generally, and generative AI (Gen AI) more specifically, to help insurers detect hidden recovery opportunities, assess liability and likelihood of recovery, as well as surface and apply relevant negligence/fault legislation is one of the most effective ways to modernise this important process. The result is fast, accurate, and fair recovery that benefits both insurers and their customers and helps to address the continuing combined ratio problem.