Some may call it "counting beans," whereas others suggest that statistics are never a true guide about what is really happening. Reality lies somewhere in the middle of any audit process. When a railroad looks solely at costs and statistics, key workers get laid off, and car, locomotive, and track maintenance are postponed. This causes cars to derail, creating delays around the system, and the operating ratio climbs astronomically. The same is true for an insurance company or a self-funding commercial entity, be it a corporation, a governmental agency or an institution. Numbers and bottom lines tell only part of the story.

Insurers produce audits with lots of numbers and then analyze those numbers for a variety of purposes. Some reports are required by state regulators. Reports that determine whether an insurer is solvent are extremely important to insurers, insurance commissioners, the public, and the raters at Best's. Some combined loss ratios, the ratio of claim payments, allocated expenses, and reserves to premiums, can exceed 100. If the company has invested wisely then these ratios still provide evidence of profitability to the insurance department, policyholders, stockholders, and employees. There is a limit, however, as to how much investment income can offset a high loss ratio, and that is where the insurer needs to look at the overall claim reports and analyze the data.

The Macro-Analysis ApproachIf an insurer breaks down its loss data into various categories such as specific lines of coverage, then it will soon be able to pinpoint problems. For a national or even state-wide insurer with a mixed business of personal and commercial lines, it is necessary to break the data down into categories: personal auto, business auto, homeowners', property, commercial property, homeowners' liability, general liability premises, general liability operations, general liability products, professional liability, employee theft, crimes involving money, crimes involving property, and so on.