7 Metrics Every VP of Claims Should Track to Drive Efficiency

In today’s fast-paced insurance industry, the success of a claims department can make or break an organization’s profitability. As claims operations grow more complex—due to rising customer expectations, evolving regulatory requirements, and the need for robust fraud detection—the role of the Vice President (VP) of Claims becomes increasingly critical. By focusing on key performance indicators (KPIs) designed to measure efficiency, accuracy, and customer satisfaction, VPs of Claims can strike the perfect balance between effective claims processing and sustainable profitability.

In this blog, we’ll explore seven essential metrics that every VP of Claims should track to drive organizational efficiency, along with real-life examples, best practices in data collection, and practical strategies to transform raw data into actionable insights.

1. Why Metrics Matter: Linking KPIs to Outcomes

For insurance executives, choosing the right metrics is fundamental. Metrics act as the dashboard indicators for the health of the claims function, guiding decisions that directly impact both the bottom line and customer satisfaction. When tracked, analyzed, and acted upon correctly, these metrics offer:

1. Operational Efficiency: Identifying process bottlenecks, eliminating redundancies, and streamlining workflows.
2. Financial Control: Managing the loss ratio and expense ratio effectively, thus keeping profitability in check.
3. Regulatory Compliance: Keeping track of standards such as prompt payment requirements or fair claims settlement practices.
4. Customer Experience: Measuring the quality of customer interactions, from first notice of loss (FNOL) to final settlement.

Metrics drive accountability among team members, enhance transparency with stakeholders, and provide a clear line of sight into both short-term objectives and long-term strategic goals.

2. The Top 7 Metrics Every VP of Claims Should Track

2.1. Claims Cycle Time

Claims cycle time measures the duration from the first notice of loss (FNOL) to the final settlement or closure of the claim. This metric provides insight into how quickly and efficiently claims are processed.

Why It Matters:

• Customer Satisfaction: A faster resolution often translates into a better customer experience.
• Operational Efficiency: Longer cycle times can increase operating costs, compound disputes, and open the door to higher indemnity payments.
• Regulatory Compliance: Many jurisdictions impose deadlines for acknowledgment and payment, making cycle time critical to avoid penalties.

Real-Life Example:

A mid-sized auto insurer in the Midwest noticed that its claims cycle time had gradually increased from 12 days to 18 days over six months. Further investigation revealed that paper-based document processing was causing significant delays in adjusting claims. By introducing an e-claims platform and automated notifications to policyholders, they reduced cycle time back to 12 days within one quarter—leading not only to cost savings but also to a rise in net promoter score (NPS) by 15%.

Best Practices to Improve Cycle Time:

• Automation: Use electronic documents, automated triage, and straight-through processing for simple claims.
• Workflow Optimization: Implement clear guidelines on claim reassignment, approvals, and hand-offs to reduce delays.
• Employee Training: Equip adjusters with up-to-date knowledge and tools so they can quickly settle claims without multiple escalations.

2.2. Cost per Claim

Cost per claim evaluates the total expense (adjuster labor, vendor fees, litigation costs, overhead) involved in settling a single claim.

Why It Matters:

• Financial Performance: High cost per claim can erode profit margins, particularly if claims frequency rises.
• Process Efficiency: A spike in cost per claim may indicate inefficiencies like overstaffing, excessive vendor reliance, or inflated indemnity.
• Benchmarking: Tracking cost per claim across different lines of business helps identify which segments are most profitable.

Real-Life Example:

A large property insurer discovered that cost per claim for homeowners’ policies in coastal regions was nearly 20% higher than in inland areas with a similar frequency of claims. The discrepancy was traced to repeated re-inspections and extensive coordination with third-party contractors for roof and flood damage. By establishing a preferred vendor network and aligning processes for contractor estimates, the insurer reduced cost per claim by 10% over the next year.

Best Practices to Improve Cost per Claim:

• Preferred Vendor Programs: Negotiate favorable rates and service-level agreements (SLAs) with repair shops, contractors, and experts to limit administrative overhead.
• Early Detection of Fraud: Implement advanced analytics to flag potentially fraudulent claims early, thus reducing costly investigations down the line.
• Litigation Management: Have robust protocols to decide when to settle and when to litigate, minimizing unnecessary legal expenses.

2.3. Claims Accuracy

Claims accuracy measures the correctness of claims settlements and payments, from indemnity amounts to the proper application of coverage terms, limits, and exclusions.

Why It Matters:

• Financial Protection: Overpayments directly eat into the bottom line, while underpayments can lead to regulatory complaints or reputational damage.
• Customer Trust: Inaccuracies can erode trust, leading to complaints, negative reviews, and potential legal action.
• Process Quality: Accuracy issues often reveal systemic breakdowns—insufficient staff training, outdated underwriting guidelines, or inadequate claim review protocols.

Real-Life Example:

A personal lines insurer implemented a Quality Assurance (QA) program where a random sample of closed claims was audited each month. Initially, the audit found a 12% error rate, leading to higher indemnity than necessary in some cases. Through targeted training on policy language and coverage specifics, the claims accuracy rate improved to 97%, saving the company millions in potentially overpaid claims.

Best Practices to Improve Accuracy:

• Regular Claims Audits: Conduct monthly or quarterly audits using standardized checklists to identify common causes of errors.
• Training & Continuous Education: Provide ongoing training on policy language, coverage changes, and compliance updates.
• Decision Support Tools: Deploy AI-driven tools that automatically suggest coverage limits or average settlement ranges, ensuring alignment with best practices.

2.4. Net Promoter Score (NPS)

Net Promoter Score (NPS) measures how likely your customers are to recommend your insurance services to others. Usually asked through the question, “On a scale of 0–10, how likely are you to recommend us to a friend or colleague?” Those who answer 9 or 10 are “Promoters,” 7–8 are “Passives,” and 0–6 are “Detractors.” The final NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

Why It Matters:

• Customer Loyalty: A high NPS correlates with strong customer retention and brand advocacy.
• Market Differentiation: In the competitive insurance landscape, an excellent claims experience can set your company apart.
• Revenue Growth: Loyal customers often purchase additional policies (e.g., auto, home, life) and recommend friends or family.

Real-Life Example:

After a major hurricane, a property and casualty (P&C) insurer sent out NPS surveys to policyholders who had filed claims. They noticed a steep decline in NPS due to delays in adjuster visits. To address the issue, they launched a fast-response catastrophe (CAT) team that leveraged drones and remote video inspections. The result? NPS climbed by 25 points the following year, and customer retention improved in the affected areas by 12%.

Best Practices to Improve NPS:

• Quick Responses: Train frontline teams to be empathetic and responsive, especially in stressful claim situations like natural disasters.
• Transparent Communication: Keep policyholders informed about each stage of the claims process, from submission to final settlement.
• Close the Loop: Contact customers who give low scores to understand the root cause and implement meaningful improvements.

2.5. Severity: Average Paid Loss per Claim

Severity is the average amount paid per claim once it is settled. This includes indemnity payments (compensation for damages) and allocated loss adjustment expenses (ALAEs), such as legal defense costs.

Why It Matters:

• Risk Management: Rising severity can signal changes in risk exposure—like higher medical costs or more sophisticated fraud tactics.
• Pricing & Reserving: Accurate measurement of severity is crucial for actuaries to set competitive premiums and reserve estimates.
• Trend Analysis: Tracking severity over time helps determine whether external factors (economic inflation, regulatory changes) or internal factors (claims handling procedures) are driving costs.

Real-Life Example:

A commercial auto insurer noticed a jump in average severity for trucking claims, which was traced back to a spike in medical costs for accidents involving third-party injuries. By collaborating with healthcare providers to negotiate reduced fee schedules and focusing on driver safety programs, the insurer contained the severity increase and maintained profitability in a challenging line of business.

Best Practices to Improve Severity:

• Early Intervention in Injury Cases: Immediate medical assessments and case management can shorten recovery times and reduce costly procedures.
• Fraud Detection: Use predictive modeling to identify suspicious claims that inflate loss amounts.
• Settlement Strategies: Encourage adjusters to settle meritorious claims swiftly while effectively managing legal defense in disputed cases.

2.6. Subrogation Recovery Rate

Subrogation involves recovering funds from a third party who is legally liable for a claim your company has already paid to the policyholder. The subrogation recovery rate measures how effectively a claims department pursues and recovers these costs.

Why It Matters:

• Revenue Enhancement: Effective subrogation can significantly improve an insurer’s financial results by offsetting claim expenses.
• Operational Efficiency: High recovery rates often reflect efficient case handling and robust legal partnerships.
• Equitable Risk Allocation: Ensuring the at-fault party pays for losses can help maintain fair premium rates for policyholders.

Real-Life Example:

A personal auto insurer noticed that their subrogation recovery rate was lagging behind industry benchmarks. Upon review, they found that less than 50% of subrogation opportunities were being pursued, mainly due to fragmented processes and limited oversight. By centralizing subrogation under one specialized unit and investing in analytics to identify potential third-party responsibility, the company boosted its recovery rate from 30% to 65% in two years—adding millions back to the bottom line.

Best Practices to Improve Subrogation:

• Dedicated Subrogation Team: Assign experienced adjusters or legal staff to handle subrogation cases.
• Analytics & Automation: Use software to flag and prioritize subrogation opportunities early in the claim lifecycle.
• Negotiation & Legal Expertise: Strengthen partnerships with law firms or mediation services that excel in recovering owed amounts.

2.7. First Contact Resolution (FCR)

First Contact Resolution (FCR) measures the percentage of claims or inquiries that are resolved during the initial interaction with the customer. While it’s more commonly associated with customer service metrics, FCR can be a crucial indicator of claims efficiency and customer satisfaction.

Why It Matters:

• Customer Experience: Quick resolution at the first contact reduces policyholder anxiety and builds trust.
• Reduced Workload: High FCR rates decrease repeated follow-ups, saving time and resources.
• Brand Reputation: Insurers known for straightforward and quick claims resolution often stand out in competitive markets.

Real-Life Example:

A leading travel insurer found that almost 40% of calls from policyholders involved simple questions about claim documentation. By improving their self-service portal and training call center staff to handle documentation questions in a single call, they cut repeat calls by 30% and improved overall FCR. The reduction in inbound call volume saved the insurer an estimated $500,000 annually.

Best Practices to Improve FCR:

• Employee Empowerment: Give frontline staff the authority and tools to make immediate decisions on low-complexity claims.
• Comprehensive Knowledge Base: Maintain an updated database of FAQs, coverage clarifications, and procedural guidelines.
• Omnichannel Support: Enable multiple self-service channels (web, app, chatbots) to handle simpler queries without involving an adjuster.

3. Data Collection & Analysis: Tools for Real-Time Tracking

Collecting and analyzing data in real time is essential for any VP of Claims to keep a pulse on these seven metrics. The days of relying on monthly or quarterly reports are long gone; modern insurers need immediate, data-driven insights to stay competitive and compliant.

1. Claims Management Systems (CMS)
   • These platforms act as the backbone of claims operations, providing a consolidated view of claim files, documentation, and process flows.
   • Integration with policy administration systems ensures seamless data exchange and reduces manual entry errors.
2. Business Intelligence (BI) Dashboards
   • BI tools like Tableau, Power BI, or Qlik can help visualize metrics in real time, offering interactive dashboards for different stakeholders.
   • By setting KPI thresholds, executives can receive alerts when metrics deviate from acceptable ranges.
3. Artificial Intelligence (AI) & Predictive Analytics
   • AI-driven solutions can forecast claim costs, flag potential fraud, and expedite settlement of routine claims.
   • Machine learning models can analyze historical data for trends in cycle times, costs, or severity, enabling proactive improvements.
4. Collaboration & Communication Tools
   • Platforms like Microsoft Teams, Slack, or specialized insurance collaboration tools speed up the claims process through immediate communication.
   • Features like file sharing, real-time chat, and integration with claims systems enable adjusters, managers, and external vendors to coordinate more effectively.

4. Actionable Insights: How to Improve Metrics

Simply tracking metrics isn’t enough; the real value lies in interpreting them and making strategic changes. Below are a few targeted approaches to refine each of the core metrics discussed:

1. Identify Root Causes with Root-Cause Analysis (RCA)
   • When a metric dips below the acceptable threshold—say NPS declines—conduct RCA sessions with claims teams and even policyholders.
   • Uncover if the issue is communication, technology, or training-related, then formulate targeted solutions.
2. Set Clear Performance Targets
   • Use industry benchmarks to define what “good” looks like for each metric (e.g., aiming to keep claims cycle time under 10 days for straightforward auto claims).
   • Translate these targets into departmental and individual goals to drive accountability.
3. Pilot Programs & Continuous Improvement
   • Before rolling out major process overhauls, run pilot programs to measure impact. For example, if you want to reduce cost per claim, test new settlement guidelines in a specific region or line of business.
   • Track the results, refine the approach, then scale successful initiatives to the broader organization.
4. Employee Engagement & Training
   • Regularly update staff on key performance metrics so they understand how their day-to-day actions affect the broader organizational goals.
   • Provide ongoing professional development, particularly as technology and regulations evolve.
5. Leverage Feedback Loops
   • Implement closed-loop feedback processes for both internal staff and policyholders.
   • For instance, send post-settlement surveys and gather real-time feedback from adjusters to identify improvement opportunities in the claims workflow.
6. Invest in Modern Technologies
   • Deploy advanced solutions for document management, fraud detection, and automated underwriting.
   • Streamline data collection through mobile apps and self-service portals to reduce manual overhead and errors.
7. Reward Performance
   • Consider implementing incentive structures or recognition programs for teams that excel in meeting or exceeding KPI targets.
   • Publicly celebrate wins to foster a culture of excellence and accountability within the claims department.

5. Bringing It All Together: A Holistic Approach

Each of the seven metrics discussed—claims cycle time, cost per claim, claims accuracy, NPS, severity, subrogation recovery rate, and first contact resolution—represents a vital component of a well-rounded, high-performing claims operation. However, these metrics should not be viewed in isolation:

• Interdependencies: Lowering claims cycle time without maintaining accuracy and cost controls may lead to overpayments, negatively affecting cost per claim and ultimately profitability.
• Synergistic Improvements: Enhancing communication channels could simultaneously boost NPS, reduce cycle time, and improve FCR.
• Strategic Alignment: Ensure that improvements in claims management align with broader organizational objectives like risk management, underwriting discipline, and customer retention.

As a VP of Claims, the ultimate goal is to cultivate a data-driven culture where every member of the team, from adjusters to senior managers, recognizes the importance of these metrics. By doing so, you position your organization to respond nimbly to market shifts, regulatory changes, and evolving customer expectations.

In an environment where customers demand instant service and stakeholders expect sustainable profitability, tracking the right metrics is non-negotiable. The seven metrics outlined—cycle time, cost per claim, accuracy, NPS, severity, subrogation recovery rate, and first contact resolution—offer a comprehensive view of the claims process. They reveal where inefficiencies lie, help prevent financial leakages, and highlight opportunities for delivering superior customer experiences.

Key Takeaways for Insurance Executives:

1. Embrace a Data-Driven Mindset
   • Regularly monitor these seven KPIs and dive deep into their root causes.
   • Use predictive analytics and AI where possible to proactively manage risks.
2. Continuously Improve Processes & Systems
   • Adopt modern claims management systems and communication tools to boost efficiency and transparency.
   • Engage in pilot programs, analyze the results, and scale successful innovations across the organization.
3. Focus on People
   • Provide ongoing training and support to claims adjusters, managers, and cross-functional teams.
   • Cultivate a customer-centric culture that prioritizes empathy, clear communication, and fair settlements.
4. Align Metrics with Strategic Goals
   • Recognize that each KPI affects others—strive for a balanced approach where you optimize cycle time without compromising accuracy or cost control.
   • Keep the executive leadership team, underwriters, and risk managers informed to ensure company-wide alignment.

By diligently tracking these performance metrics and translating the insights into actionable strategies, VPs of Claims can serve as strategic leaders who not only manage day-to-day operations but also drive the broader vision of efficient, customer-centric, and profitable insurance services. Adopting this metrics-focused approach ensures that your claims department remains agile, transparent, and resilient in the face of ever-changing market dynamics.