Bridging the Friction Gap: Revolutionizing P&C Insurance Operations

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Table of Contents Executive Summary 03 Defining the Problem: Understanding the Friction Gap 04 The Costly "Combined Ratio See-Saw" 05 Insights from Industry Analysis 05 Real-World Success Stories 09 Take Action: Getting Started - Bridge Your Friction Gap 11 02 Bridging the Friction Gap: Revolutionizing P&C Insurance Operations Bridging the Friction Gap: Strategic Solutions 07

The insurance industry faces significant operational inefficiencies—collectively known as the Friction Gap—that inflate costs, erode profitability, and limit competitive advantage. Much of this is driven by inefficient processes, legacy system limitations, sub-optimal business practices often exacerbated by the need for workarounds managed by staff. Lack of insight available to both staff and management impacts the ability to manage effectively on both the tactical and strategic level. Traditionally, when looking to address issues or improve capabilities, insurers usually increase headcount as a way to quickly address issues.This inadvertently boosts expenses with the hope that results will improve, such as a lower loss ratio, increases to premium or improvements in retention.This “strategy of hope” does not always bear fruit. PS Advisory specializes in helping insurers effectively bridge this Friction Gap. By streamlining operations, harnessing advanced technology and data analytics, and refining underwriting and claims management, insurers can significantly reduce costs, enhance profitability, and achieve operational excellence without having to add to expenses. At this point in time in the industry, insurers can actually improve both quality and service while reducing costs by effectively leveraging technology. When determining what strategy an insurer is going to select, it is in the insurer's. best interest to identify how the chosen strategy impacts the organization's friction and the combined ratio. To improve approval success rate for proposed projects, it is helpful to understand how proposed projects address the Friction Gap and will improve the expense or loss ratio. When put in this context, proposals touch on something senior management cares about deeply. 03 Bridging the Friction Gap: Revolutionizing P&C Insurance Operations

04 Expense Premium Claims Premium Defining the Problem: Understanding the Friction Gap The impact that imperfect processes, systems, and business practices have on both the loss and expense. The Friction Gap refers to unnecessary expenses and operational inefficiencies arising from outdated processes, fragmented systems, and excessive manual intervention. The friction gap is not just about transaction efficiency. It also refers to the impact on underwriting quality, business selection, management visibility and claims results that is impacted by friction. It negatively affects two critical performance metrics which impact the combined ratio: Loss Ratio: Represents the proportion of earned premiums used to pay claims. Expense Ratio: Represents operational and administrative costs as a percentage of premiums earned. The Friction Gap When insurers fail to address these inefficiencies, they remain trapped in costly cycles of high operational expenses and suboptimal loss experience. Combined Ratio Expense Ratio Loss Ratio = + Bridging the Friction Gap: Revolutionizing P&C Insurance Operations

05 A comprehensive analysis of AM Best data conducted by PS Advisory reveals crucial insights. The chart highlights insurers that are outperforming their peers with a combined ratio that is less than the competition. 60% of insurers outperforming the market average do this with a higher expense ratio than their competitors, indicating substantial friction despite strong performance metrics. This higher expense ratio represents higher overall operational expenses. These insurers have benefited from a Combined Ratio See Saw investment that has resulted in a lower loss ratio and lower overall combined ratio than the rest of the market. The friction gap of having a higher expense ratio puts these insurers at risk of doing worse than their competitors during any significant market change. Having a less efficient organization leads to the assumption that these companies are also less flexible (due to higher levels of manual processing and legacy infrastructure) and will not be able to adjust quickly to changes in the market or shifts in go to market strategy. Unknowingly, insurers have often resorted to a strategy we call the "Combined Ratio See-Saw," wherein insurers support higher expenses, usually in the form of staffing increases, to address operational or strategic challenges. The belief is that the increased expense investment will result in lower loss ratios. Unfortunately, this approach leads to temporary relief at best and permanent increased expenses at worst, rarely delivering lasting performance gains. This method traps insurers in a vicious cycle, balancing rising operational costs against inadequate improvements in loss experience.. The Costly Combined Ratio See-Saw Insights from Industry Analysis Source: AM Best data Bridging the Friction Gap: Revolutionizing P&C Insurance Operations 60% of insurers outperforming the market average do this with a higher expense ratio than their competitors

06 Higher Expense Ratio Lower Loss Ratio Lower Expense Ratio Lower Loss Ratio Lower Expense Ratio Higher Loss Ratio 0% 20% 40% 60% Source: AM Best Only 22% of outperforming insurers demonstrate both lower loss and expense ratios, underscoring the extensive opportunity for improved operational efficiency across the industry. Friction gaps affect more than just operational expenses. Imperfect business practices that are difficult to change also impact underwriting decisioning, risk selection, lack of visibility on book development impacting management's ability to make fully informed decisions, sub-optimal claims settlement, sub optimal reserve management, and distribution management that is not as effective as it should be. The result is that the operational friction negatively impacts the loss ratio, dragging down the entire combined ratio. Insurers with Combined Ratios LOWER than the Competition The Friction Gap Only 22% of outperforming insurers demonstrate both lower loss and expense ratios Bridging the Friction Gap: Revolutionizing P&C Insurance Operations

Insurers with Combined Ratios LOWER than the Competition Higher Expense Ratio Lower Loss Ratio Lower Expense Ratio Lower Loss Ratio Lower Expense Ratio Higher Loss Ratio 0% 20% 40% 60% Source: AM Best Bridging the Friction Gap: Strategic Solutions PS Advisory provides targeted recommendations are designed to sustainably address and bridge the Friction Gap. Finding and eliminating friction is not a “one size fits all” solution. Each insurer and each line of business has its own characteristics that need to be taken into account. Solutions implemented must reflect the state of the current environment, strategic direction, immediate versus long term needs and impact on results. PS Advisory will work with insurers to address these concerns and develop a plan that can be done on a continuous improvement basis, so that benefits can be realized quickly and continued in a regular cadence. General areas of concern that are addressed: The Friction Gap 07 Bridging the Friction Gap: Revolutionizing P&C Insurance Operations

Automation of Routine and Repetitive Tasks: Newer technology can automate workflows and processes to manage routine tasks such as data entry, claims handling, and documentation. Technology that can be leveraged needs to be selected based upon the complexity and needs of the insurer. Artificial intelligence, OCR, digital vision, rule and workflow based platforms, and decisioning toolsets are all examples of technology that can be brought to bear. These technologies can free skilled professionals to concentrate on complex and strategic issues, lowering operational overhead. 01 Enhanced Data Analytics and Predictive Modeling: Leverage advanced analytics and predictive modeling to improve underwriting accuracy, risk selection, claims handling efficiency, and fraud detection. Real-time analytics enable proactive responses to emerging risks and market trends. 02 Work Selection Optimization: Not all tasks, transactions or processes are of equal importance. Whether it is choosing which submission to review or which claims tasks to perform, insurance professionals have to make a choice as to what to work on first. Leveraging functionality such as automated file set up, analytical testing for data completeness and stack ranking of work queues helps underwriters, adjusters and support staff identify and prioritize how they spend their time. 03 08 Bridging the Friction Gap: Revolutionizing P&C Insurance Operations

Case Study N2G - Digital Transformation in Commercial P&C 09 These strategies emphasize the essential role of human judgment and expertise in tasks such as relationship management, complex underwriting decisions, claims adjudication and strategic negotiations, complemented by technology solutions that manage routine operations efficiently. Process Optimization and Streamlining: Too often, how business is accomplished is not fully understood. The justification of “we’ve always done it this way” highlights where processes need to be re-engineered. As part of any transformation process, process reviews are leveraged to eliminate redundant steps, automate manual procedures, and improve process flow from policy issuance through claims resolution. Streamlining enhances agility and operational responsiveness. 04 Integrated Systems and Infrastructure: Similar to process reviews, the system architecture must be understood to create a sustainable/flexible to-be environment. The goal is to establish a fully integrated technology platforms that ensure smooth, automated data flows between various insurance functions (underwriting, claims, finance, and distribution). This reduces errors, manual interventions, and friction points throughout the operational lifecycle. 05 Challenge: Operational complexity arising from multiple, disconnected underwriting systems and consolidating very disparate underwriting programs into a single offering. Solution: Consolidation of seven platforms into three integrated into a Salesforce-powered, end to end cohesive environment. Impact: Over 1,000 hours saved annually by significantly reducing redundant data entry tasks 25% improvement in underwriting accuracy and documentation consistency Bridging the Friction Gap: Revolutionizing P&C Insurance Operations

10 Case Study LWCC - Enhancing Underwriting and Distribution Efficiency Challenge: Inefficient, manually intensive submission and distribution management processes Solution: Implementation of an advanced Salesforce underwriting desktop, integrated broker portal, and distribution management platform empowering field managers. Impact: Submission processing time reduced dramatically from 30 minutes to 90 seconds Enhanced straight-through processing rates of new business submissions from 40% to 71%, significantly reducing manual touch points Automated endorsement processing increased from 0% to 40% and growing. Manual producer visit reports taking 2-3 hours each replaced with generated reports taking 15-20 minutes that include a shareable Report summary, on line visit documentation and follow on task management Enhanced straight-through processing rates of new business submissions from 40% to 71%, significantly reducing manual touch points Bridging the Friction Gap: Revolutionizing P&C Insurance Operations

11 LET’S TALK By strategically addressing and eliminating your organization's Friction Gap, insurers can: Significantly reduce operating expenses Improve underwriting quality and claims outcomes Enhance customer and agent experiences, driving retention and growth Take Action: Getting Started Bridge Your Friction Gap Contact PS Advisory today to explore how bridging the Friction Gap can unlock enduring competitive advantages and substantially improve your organization's operational performance and profitability. Property Casualty insurers, if you would like to have your Friction Gap mapped and analyzed based upon your market and competitor metrics. Email: [email protected] Bridging the Friction Gap: Revolutionizing P&C Insurance Operations