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The third in a series of commentaries on the combined ratio problem facing the global insurance industry.

The insurance industry faced an average combined ratio of nearly 102% exiting 2023. And
according to widely accepted industry estimates, approximately 15% of P&C claims are
closed with missed subrogation opportunities. That represents a cost of between $15-20
billion annually, with some calculations putting the cost at closer to $30 billion. Since
those missed opportunities directly impact the bottom line, and ultimately the combined
ratio, it stands to reason that more effective subrogation and recovery can have a profound
impact on an insurer’s bottom line.

As an industry we have also seen that a strategy that relies only on raising premiums is
not enough to have the desired effect on the combined ratio. Furthermore, focusing solely
on increasing premiums also creates the real risk of driving customer dissatisfaction if
policyholders believe they are being treated unfairly. This can create churn and the new
problem of replacing top-line revenue. As such, applying best practices to the subrogation
and recovery process represents an excellent opportunity to shave points off of the
combined ratio.

Using artificial intelligence (AI) generally, and generative AI (Gen AI) more specifically, to
help insurers detect hidden subrogation and recovery opportunities, assess liability and
likelihood of recovery, as well as surface and apply relevant negligence/fault legislation
is one of the most effective ways to modernize this important process. The result is
fast, accurate, and fair subrogation and recovery that benefits both insurers and their
customers and helps to address the continuing combined ratio problem.

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