CII Certificate in Insurance - Insurance Claims Handling Process (IF4) Practice Test

In the context of insurance claims, hard leakage refers to quantifiable losses that arise from inaccuracies in underwriting, pricing, or claims handling, which can be directly measured in financial terms. This makes it easier for insurance companies to track and analyze these losses effectively. For example, hard leakage could occur when claims are paid that exceed the expected loss ratio, and these situations are often clear-cut and identifiable through data analysis.

In contrast, soft leakage represents less tangible issues such as customer dissatisfaction or reputational harm, which may not immediately reflect in financial metrics but can lead to long-term losses in client retention and trust. These types of losses are more nuanced, making them more challenging to capture and measure accurately.

The distinction highlights the effectiveness and reliability of focusing on hard leakage when assessing the financial performance related to claims, as it provides clearer insights into where costs are being incurred. Hence, the assertion that hard leakage is easier to measure is valid in this context.