What is Claims Leakage: Definition & How it Impacts Adjusters

What Is Claims Leakage?

In simple terms, claims leakage is the difference between what a carrier actually pays on a claim and what it should have paid. It represents an operational loss rather than intentional wrongdoing, and it is measurable and preventable when the right data and processes are in place.

Claims leakage is not the same as fraud or waste. Fraud involves deliberate deception to obtain an unwarranted payment. Waste refers to unnecessary or avoidable costs that benefit no one. In contrast, claims leakage occurs when critical data is missing, processes are inefficient, or adjusters are not using tools to scope and price claims accurately. When the true scope of work or entitlement isn’t captured, carriers end up paying more than necessary — even when all parties are acting in good faith.

Because it originates from human error, process gaps, or mismatches with technology, claims leakage is an operational issue. That also means it is quantifiable and preventable, which makes addressing it a key part of claims management strategy.

Claims Leakage by the Numbers

Understanding the scale of claims leakage helps underscore why carriers and adjusters need to pay attention to it:

Industry Estimates

While exact figures vary by sector and claim type, many industry reports suggest that claims leakage can range from 5% to 30% of total claims paid. In large portfolios, this can translate into millions of dollars in avoidable expenditure annually.

Example Illustration

If a carrier pays out $10 million in roofing claims in a year, and a modest 10% leakage is present, that equates to $1 million in leakage money that should not have been paid if claims were scoped and managed accurately.

Per Claim Impact

On a single claim, even a 5% overpayment can add hundreds or thousands of dollars to the carrier’s costs. For adjusters working high volume or complex portfolios, these small variances add up quickly.

These figures show why carriers invest in tools, training, and workflows designed to reduce leakage and maintain profitability.

Causes of Claims Leakage

Claims leakage typically has three main causes: human error, inefficient processes, and a mismatch between adjuster needs and available technology.

Human error

People aren't perfect. No matter how careful you are, you're bound to make a mistake at some point. Claims leakage often occurs when claims adjusters and other insurance professionals rely on manual or outdated processes. A lack of training may also cause professionals in the insurance industry to make critical mistakes.

Inefficient and onerous processes

 Following inefficient processes may lead to inconsistency, making it more difficult to investigate claims thoroughly, catch duplicate claims or make decisions related to policy statements that aren't crystal clear about what's covered in unusual situations.

Technology issues

Some claims adjusters don't have the right tools for maximizing efficiency. Outdated technology can also slow you down when it comes to investigating claims, following up with clients and taking care of your other responsibilities.

How Claims Leakage Affects Claims Adjusters

Claims leakage doesn’t just impact carriers financially — it has multiple effects on the everyday role and career of a claims adjuster.

Impact on Professional Relationships

Insurance carriers like to work with independent claims adjusters who can help them keep your costs low. If you don't handle claims as efficiently as other adjusters, some of your clients may stop using your services. Even if a client doesn't drop you, claims leakage may affect the relationship, which means you'll have to work even harder to keep the client satisfied.

Increased Business Costs

Once you know that claims leakage is a problem, you need to do whatever you can to fix it. Depending on the cause of the inefficiencies, you may need to invest in new technology, hire a consultant to help you develop new business processes or bring on an employee to handle clerical work and other tasks that aren't directly related to claims handling. Although these steps can help increase efficiency, they can also increase your business costs substantially.

Fewer Professional Development Opportunities

If you're dealing with claims leakage, you can't spend as much time gaining new knowledge or developing new skills. Instead of taking classes or attending networking events, you'll be looking for ways to increase efficiency and prevent errors. The longer you go without making time for professional development, the more difficult it will be to advance your career.

How to Calculate Claims Leakage

Calculating claims leakage can be straightforward when you know the basic formula:

Claims Leakage = Claims Paid minus Claims Owed

For example, if a carrier pays $15,000 on a claim that should have cost $12,000 based on accurate data and scope:

$15,000 minus $12,000 = $3,000 leakage

This $3,000 represents an overpayment that could have been avoided with more precise adjustment, better tools, or clearer data capture.

Understanding how to quantify leakage at the individual claim and portfolio levels helps adjusters and carriers identify trends, justify process improvements, and measure the impact of efficiency initiatives.

Types of Claims Leakage

Not all leakage comes from the same source. Understanding the different types helps adjusters target improvements more effectively.

Overpayment Leakage

This occurs when more is paid on a claim than is owed because of errors in scope, pricing, or interpretation. Examples include incorrect line items, duplicated charges, or misapplied policy provisions.

Under‑Recovery Leakage

This type of leakage appears when carriers fail to capture recoverable costs, such as subrogation opportunities. It doesn’t show up as an overpayment, but it still represents lost revenue.

Process Leakage

Hidden costs associated with inefficient workflows fall into this category. These are not always obvious on paper, but they include extended cycle times, redundant communication loops, manual duplication of effort, and other inefficiencies that increase claim handling costs.

By identifying these types, carriers can assign targeted solutions rather than generic fixes.

Claims Leakage vs Claims Fraud: What’s the Difference?

Claims leakage and claims fraud are related concepts, but they are not the same.

Claims Leakage

• Results from human error, process gaps, or tool mismatches
  
• Is generally unintentional
  
• Represents operational inefficiencies
  
• Is measurable and preventable
  

Claims Fraud

• Involves intentional deception
  
• Aims to secure money to which no entitlement exists
  
• Carries legal and ethical consequences
  

For claims adjusters and auditors, distinguishing between leakage and fraud is important because the response and mitigation strategies differ. Leakage calls for better tools, training, and process design. Fraud requires investigation, reporting, and legal action.

Tips for Dealing with Claims Leakage

Since claims leakage typically occurs due to human error, inefficient processes and/or a mismatch between your needs and the technology you're using, the best way to deal with it is to examine all three areas of your business and determine what you need to change to increase efficiency. You may decide to make some or all of the following changes:

1. Upgrade your computer system to reduce the amount of time it takes to handle a claim.

2. Implement new processes for investigating claims to make sure they aren't fraudulent.

3. Create a manual to document best practices in claims handling and make sure you follow each one when a new claim comes in.

4. Invest in tools to reduce the average amount of time spent on each claim.

Takeaway

A basic claims leakage definition is the difference between how much money a company pays for a claim and how much the company should have paid for the claim.

Claims leakage typically occurs due to the use of inefficient processes.

A high level of claims leakage can hurt your reputation and make it difficult to grow your career.

It’s possible to limit claims leakage by reviewing your internal processes and working to make them more efficient.

About OneClick Code

OneClick Code is a trusted data partner, dedicated to streamlining the code-sourcing process for all parties in the roofing industry while also increasing efficiency and transparency for all stakeholders in construction and restoration. They have the only platform to have blazed the trail for data automation of jurisdictional authority for building codes, permit fees, taxes, and manufacturer specifications required for any address nationwide. OneClick Code has been serving customers in the contracting, insurance, and claim adjusting fields by providing instant access to trusted roofing codes, in the click of a button. Offering unique reports that can be easily shared between all stakeholders in the roofing claims industry, OneClick is adding value to all parties and empowering customers to save time and money on every claim. Welcome to restoration intelligence, automated. To learn more, visit our website www.oneclickcode.com.