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KPI of the Day – Insurance: $ Insurance policy value

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Definition

Measures the average value of a new individual life insurance policy.

Purpose

To assess the value of one policy sold, as it further influences the insurance company’s revenue and the potential size of claims.

Recommendations

Life insurance is one of the most popular products in the insurance industry. However, oftentimes, insurance companies are challenged & encumbered by the inflexibility of a country’s legal policy and administration systems.

To outweigh this disadvantage, product quality improvement is one approach that insurance companies currently rely on, in order to enhance their selling propositions. Other approaches, such as designing innovative products and leveraging modern technology, are also being advanced. The end result is a diversified palette of life insurance products, the policies of which have different values.

The monetary utility of life insurance often reflects on region-specific regulations, general operational requirements, and product diversity. The insurance policy value is commonly linked to the degree of risk the beneficiary is exposed to. With life insurance policies, the overall value of the policy can easily convert to life insurance cash value, when savings components are involved.

This means that the value that the beneficiary gets to cash in from the insurance proportionately increases with the decrease in the beneficiary’s mortality risk. The optimal insurance value would also ideally cover the policy administration and claims processing costs.

Measuring the average value of a policy is also relevant at the individual level, for agents that have the salaries based on commission. Knowing this, targets should be set according to the type of insurance, the insurance company’s size, the sales strategy, and market trends.

Moreover, accurate data gathering is dependent on a monitoring system that takes into account all of the policies that were sold in a given period of time and their respective values.

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