Loss ratios are steady, yet severity and settlement keep drifting
Question
Our combined and loss ratios are within plan, and the quarterly pack reads stable. But claim
severity feels higher on like-for-like perils, catastrophe claims bunch after events, cycle-times
stretch on complex lines, and reinsurance recoveries arrive slower than expected. Brokers and
actuaries disagree on trend versus noise. Why does the franchise feel more fragile when the
headline is steady?
Answer ✅
Totals can mask operational and climate-driven instability. If repair costs spike, supply chains
delay parts, adjuster loads bunch after CATs, or recovery lags extend, you can “hit ratio” while
claims become slower, costlier, and riskier. SSM-Audit adds a stability band beside the metrics
you already track so you see whether performance is calm and repeatable—or propped up by
luck and quarter-end smoothing.
What the bands would have shown 📊
• Claim severity stability sliding A+ -> A0 (parts/labor inflation, mix shift to complex claims)
• Settlement cycle-time stability degrading to A- (more long-tail outliers after CATs)
• CAT share and clustering weakening A0 -> A- (events bunch, regional correlation rises)
• Reinsurance recovery lag tilting A0 -> A- (ceded cash arrives later; liquidity strain)
• Adjuster throughput stability dipping A0 -> A- (backlogs after surges)
• Reopen/litigation rate stability softening A+ -> A0 (more reopeners and disputes)
What to do now 🛠️
- Band the claims loop: severity, frequency, cycle-time, CAT share, recovery lag, reopen rate—by peril, line, and region.
- Guard pricing and reserves: if severity band < A0 for 4 weeks, update rating guidance and strengthen case reserves.
- Smooth surge ops: pre-arrange surge adjusters; when throughput band < A0, trigger vendor overflow and triage.
- Accelerate recoveries: if recovery lag band < A0, tighten bordereaux cadence and elevate reinsurer escalations.
- Repair supply chain: preferred networks and parts pre-buys where cycle-time band slips; publish ETA promises.
- Litigation prevention: when reopen band dips, expand early settlement offers and QA on denials.
How SSM-Audit helps (practicalities) 🌟
• No additional infrastructure: runs beside claim admin, FNOL, reinsurance, and finance exports.
• Numbers unchanged: loss, LAE, and ratios remain as reported; stability is a read-only overlay.
• Easy to use: spreadsheet/BI friendly; a lightweight weekly panel per line/peril.
• Universal language: A++ / A+ / A0 / A- / A– aligns claims, actuarial, reinsurance, and finance fast.
CLI 💻 — try our mini Calculator to identify the drift
(Mini CLI Download Page)
Feed your CSVs and see bands and drift at a glance (numbers unchanged).
# Claim severity stability (normalized by peril/line)
ssm_audit_mini_calc insurance.csv --kpi "Claim Severity Stability" \
--out bands_severity.csv --plot_kpi "Claim Severity Stability" \
--build_id ins
# Settlement cycle-time stability (FNOL -> close)
ssm_audit_mini_calc insurance.csv --kpi "Settlement Cycle-Time Stability" \
--out bands_cycletime.csv --plot_kpi "Settlement Cycle-Time Stability" \
--build_id ins
# CAT share and clustering (pct claims tagged CAT, burstiness)
ssm_audit_mini_calc insurance.csv --kpi "CAT Share Stability" \
--out bands_cat.csv --plot_kpi "CAT Share Stability" \
--build_id ins
# Reinsurance recovery lag (days from report to cash)
ssm_audit_mini_calc insurance.csv --kpi "Recovery Lag Stability" \
--out bands_recovery.csv --plot_kpi "Recovery Lag Stability" \
--build_id ins
# Adjuster throughput stability (cases/adjuster-week)
ssm_audit_mini_calc insurance.csv --kpi "Adjuster Throughput Stability" \
--out bands_adjuster.csv --plot_kpi "Adjuster Throughput Stability" \
--build_id ins
# Reopen/litigation rate stability (pct reopens or litigated)
ssm_audit_mini_calc insurance.csv --kpi "Reopen Rate Stability" \
--out bands_reopen.csv --plot_kpi "Reopen Rate Stability" \
--build_id ins
Outputs you will get:
• CSVs with stability bands for each timestamp (e.g., bands_recovery.csv).
• Drift charts per KPI (--plot_kpi) showing exactly where operations or climate pressure breaks.
• Optional alerts if you enable thresholds in your setup.
Technical notes
Representation: x = (m, a) with a in (-1, +1)
Collapse parity: phi((m,a)) = m
Order-invariant pooling:
U = sum(w_i * atanh(a_i))
W = sum(w_i)
a_out = tanh( U / max(W, eps_w) )
Typical bands (example):
A++: a >= 0.75
A+: 0.50 - 0.75
A0: 0.25 - 0.50
A-: 0.10 - 0.25
A--: a < 0.10
Navigation
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Page disclaimer
Illustrative scenario for research and education. Observation-only; do not use for critical decisions without independent validation.
SHUNYAYA 