Expenses Premium Claims Premium Combined Ratio Expense Ratio Loss Ratio = + Measuring the Friction Gap Property Casualty (P/C) insurers have an advantage over Life and Annuity insurers from an insight to the cost of Friction. While both types of organization have the same impact from friction, it’s possible to measure friction much more effectively in Property Casualty companies. P/C companies leverage the Combined Ratio, which is equal to the Expense Ratio plus the Loss Ratio. Leveraging the combined ratio, P/C insurers track their own results but also those of their competitors as a benchmark. Senior management is constantly riding the Combined Ratio Seesaw, where they need to balance the expense ratio against the loss ratio, with the goal of keeping the combined ratio under 100. When justifying projects, putting benefits in terms of the combined ratio will put things in perspective for management trying to allocate investment spend. Not all projects will move the needle but giving management insight as to how any project will support their need to improve the combined ratio will increase chances of approval. PS ADVISORY: Closing the Friction Gap 4