Anonymizing Insurance Claims Data
What it takes to anonymize claims data, how that differs from pseudonymization and masking, and why removing names is only the start of the job.
Glossary
Expense Ratio Insurance
What the insurance expense ratio measures, how it is calculated, which costs sit inside it, and why a falling ratio does not always mean lower costs.
The expense ratio in insurance measures the cost of acquiring and administering insurance business relative to premium. It shows how much of the premium base supports activities such as distribution, underwriting, policy servicing, and general administration.
An expense ratio of 28%, for example, means the insurer records $28 of the included expenses for every $100 of premium used in the calculation. Understanding which expenses and which premium measure are included is essential to interpreting that number.
What is an insurance expense ratio?
For property and casualty insurers, the expense ratio is a measure of operating efficiency. It focuses on the cost of running the insurance business, separate from the cost of paying and handling claims.
In the common US statutory presentation, the underwriting expense ratio uses net written premium as its denominator. Written premium is the premium recorded for policies written during the period, including relevant policy transactions. Net written premium reflects reinsurance ceded to other insurers. NCCI’s explanation of underwriting ratios.
The ratio helps answer a practical question: how much does it cost the insurer to generate and service its premium volume?
It does not, by itself, show whether the policies are profitable. An insurer can run an inexpensive operation and still charge too little for the claims it ultimately pays.
How is the expense ratio calculated?
For a US statutory underwriting expense ratio, the formula is:
Expense ratio = underwriting expenses incurred ÷ net written premium × 100
Some financial reports use earned premium instead. Earned premium represents the portion of premium recognized as the insurer provides coverage over time. For example, AIG’s GAAP reporting expresses acquisition and general operating expense ratios against net premiums earned. Its definitions also explain why those ratios may differ from regulatory reporting measures. AIG’s underwriting ratio definitions.
The denominator therefore belongs beside the result. A ratio calculated against written premium should not be compared directly with one calculated against earned premium without understanding the difference in accounting treatment.
A worked example
Consider a fictional insurer with the following annual figures, all on a consistent net statutory basis:
| Item | Amount |
|---|---|
| Net written premium | $20,000,000 |
| Commissions and other acquisition expenses | $3,000,000 |
| General underwriting and administration expenses | $2,000,000 |
| Applicable premium taxes, licenses, and fees | $600,000 |
| Total underwriting expenses | $5,600,000 |
The expense ratio is:
$5,600,000 ÷ $20,000,000 × 100 = 28%
This insurer records $28 of underwriting expenses for every $100 of net written premium. The remaining $72 is not profit: claims and other components of the financial result still need to be considered.
Now suppose premium increases to $22 million while expenses stay at $5.6 million. The ratio falls to approximately 25.5%. Operating costs have not fallen. The same costs are being divided by a larger premium base.
That distinction matters when a company attributes a lower expense ratio to improved efficiency.
What expenses are included?
The expense base usually contains two broad types of costs: acquiring business and administering it.
Acquisition expenses relate to bringing new or renewal policies onto the books. Commissions paid to agents and brokers are a common example. Depending on the reporting basis, acquisition costs may be recognized immediately or deferred and recognized over the coverage period.
Administration expenses support underwriting and the wider operation. These can include employee costs, technology, premises, and professional services. Kinsale’s financial reporting, for example, distinguishes policy acquisition expenses from other underwriting expenses such as employment, technology, legal, and auditing costs. Kinsale’s expense definitions.
Expense allocation also matters. An employee working in claims handling may create a claims expense, while an employee processing policy changes may create an underwriting administration expense. The department label alone is not enough to determine the accounting treatment.
Are claims included in the expense ratio?
In the usual combined-ratio framework, claim payments and loss adjustment expenses are measured on the loss side. Loss adjustment expenses are the costs of investigating, defending, and settling claims.
They should not also be counted as underwriting expenses in the same calculation. The Insurance Information Institute’s statistical tables distinguish the loss and loss adjustment expense ratio from the ratio for other underwriting expenses. Insurance Information Institute’s ratio definitions.
What is a good expense ratio in insurance?
There is no single target that fits every insurer.
For context, the NAIC reported a 25.8% expense ratio for the aggregate US property and casualty industry in 2025, compared with 25.3% in 2024 and 24.9% in 2023. These are industry observations, not recommended targets for an individual business. NAIC’s 2025 industry analysis, page 1.
A useful comparison considers:
- Distribution model: commissions and direct customer acquisition costs have different structures.
- Product complexity: a specialist commercial policy may require more underwriting work than a standardized personal policy.
- Scale: a small portfolio has fewer policies over which to spread fixed costs.
- Growth stage: hiring and technology investment can occur before the related premium arrives.
- Reinsurance: changes in ceded premium and commission arrangements can affect the net ratio.
- Reporting basis: expense classifications and premium denominators need to match.
For example, comparing a growing specialist insurer with an established direct motor insurer may reveal more about their business models than their efficiency.
How insurers use the expense ratio
The ratio becomes more useful when it is broken down by product, distribution channel, and expense category. A rising result can then be traced to a specific cause, such as higher commissions, additional servicing work, or a shrinking premium base.
Suppose an insurer finds that policy changes require repeated manual entry into its policy and billing systems. Reducing that duplication could lower the cost of servicing each policy. To establish whether the change worked, the insurer could track processing time, correction rates, and cost per transaction alongside the expense ratio.
A policy administration system and an insurance billing system provide records that can support this analysis. Finance still needs to reconcile the premium and expense figures and apply consistent allocation rules.
The expense ratio is most informative when it can be explained: which costs changed, what happened to premium, and how those movements affected the result.
