Industry

Claims Leakage

Claims leakage is the difference between what an insurance company actually pays on a claim and what it should have paid with optimal handling. It includes overpayments due to fraud, inflated repairs, missed subrogation opportunities, and investigation gaps - typically representing 5-10% of total claims spend.

In this article

Sources of claims leakage The financial impact How carriers reduce leakage Key points How Hesper AI helps FAQ

Sources of claims leakage

Claims leakage comes from multiple sources: undetected fraud (the largest component), inflated repair or medical costs that go unchallenged, missed subrogation recovery opportunities, duplicate payments, vendor overbilling, and claims that should have been denied but were paid due to inadequate investigation. The common thread is insufficient verification - claims paid without the diligence needed to identify problems.

The financial impact

Industry research estimates claims leakage at 5-10% of total claims spend. For a mid-market carrier paying $500M in annual claims, that is $25-50M in preventable losses every year. The largest component - uninvestigated fraud - accounts for roughly 60% of total leakage. The remaining 40% comes from operational inefficiencies, missed recovery opportunities, and vendor management gaps.

How carriers reduce leakage

Reducing claims leakage requires improvement across the entire claims lifecycle: better fraud detection and investigation at the front end, automated verification of repair estimates and medical bills, systematic subrogation identification, vendor performance monitoring, and audit processes that catch errors before payment. The highest-ROI intervention is typically investigation capacity - ensuring every flagged claim is actually investigated, not just flagged and forgotten.

Key points

The gap between actual claim payments and optimal payments
Typically 5-10% of total claims spend ($25-50M for a mid-market carrier)
Largest source: uninvestigated fraud (~60% of total leakage)
Also includes inflated costs, missed subrogation, duplicate payments
Highest-ROI fix: ensuring every flagged claim gets investigated

How Hesper AI helps

Hesper AI directly addresses the largest source of claims leakage - uninvestigated fraud. By ensuring every flagged claim gets a thorough AI-powered investigation, carriers close the gap between detection and resolution that accounts for the majority of preventable fraud losses.

Related glossary terms

Subrogation Loss Ratio Claims Triage

Frequently asked questions

Claims leakage is typically measured through re-review audits - a sample of closed claims is re-examined by experienced adjusters or auditors to identify overpayments, missed issues, and recovery opportunities. The difference between original payments and audit-adjusted amounts, extrapolated across the full book, provides the leakage estimate. Some carriers use AI-powered continuous monitoring for more real-time measurement.

Fraud is one source of claims leakage, but leakage is broader. It includes any overpayment - whether due to fraud, adjuster error, missed negotiation opportunities, or operational inefficiency. A claim can contribute to leakage without any fraudulent intent. However, undetected and uninvestigated fraud is typically the single largest component of total leakage.

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