Loss Ratio Addiction: Why It’s Not the Only KPI That Matters

Let’s be clear insurance is a business, and like any business, it has to make money. But if the only thing we’re using to measure success is loss ratio, we’re not just missing the bigger picture, we’re often making it worse.

Loss ratio has become a kind of religion in some underwriting circles. It’s neat, it’s quantifiable, and it gives you something to aim at. But it also hides a multitude of sins. You can hit your loss ratio targets and still be haemorrhaging value somewhere else through retention loss, broker disengagement, or mispriced risk.

And let’s not pretend loss ratio can’t be gamed. Slash rates to drive volume, ride the cycle, then panic when claims catch up 18 months later. It’s textbook short-termism. Yes, it keeps the performance deck clean for a while, but it’s not a strategy, it’s a delay tactic.

What’s more useful is asking: what else drives value?

Let’s start with fair pricing. Not just FCA-compliant pricing but pricing that makes sense long-term. That reflects risk honestly. That brokers can explain without sounding sheepish. Fair pricing doesn’t just help with retention it builds a sense of brand consistency and trust. It’s a rare thing in personal lines right now, and it’s a differentiator.

Then there’s broker engagement. If a broker knows you’ll kneejerk react to every uptick in loss ratio, they’ll stop backing your products. Worse, they’ll start assuming you’re just margin-chasing. You lose goodwill, placement priority, and ultimately the volume you were trying to protect in the first place.

Insurers should be measuring things like:

• Net contribution over time (not just GWP or LR)

• Persistency rates (not just quote-to-bind)

• Broker-level loss cost consistency

• Service friction (delays, errors, breakdowns in comms, fraud)

Loss ratio will always be part of the story but it’s not the whole book. If you're obsessed with a number that only tells you about past claims, you're flying the plane by looking in the rear-view mirror.

Smart capacity strategies look at contribution and control. They ask whether the rate, the partner, and the process are all aligned not just whether last year’s claims were better than average.

So no, we’re not saying “loss ratio doesn’t matter.” Of course it does. But let’s stop treating it like gospel. Because when it’s the only thing that matters, that’s when the cracks start to show, certainly over time. 

The views expressed in this article are those of WHO2 Global Ltd and do not constitute professional advice. All content is for informational purposes only.