Addressing the Combined Ratio Problem in Insurance

This technical report discusses the combined ratio problem in the insurance industry, where claims costs are significantly outpacing premiums. It outlines the challenges insurers face, including rising claims costs due to inflation, supply chain issues, and increasing natural disasters. The report highlights the forecasted average combined ratio exceeding 102% for 2023 and the impact of regulatory controls on premium increases. It emphasizes the need for insurers to adopt strategic claims automation paired with effective fraud detection to improve loss ratios. The report details how artificial intelligence (AI) can enhance underwriting processes and mitigate fraud, potentially reducing claims costs and improving combined ratios. It also addresses the importance of subrogation and recovery strategies, suggesting that AI can significantly increase the recovery of claims value. The report concludes that while the combined ratio issue is complex, leveraging AI across various processes can lead to substantial improvements in financial outcomes for insurers.