Judging A Life Insurance Company Based On Its Claim Settlement Ratio

Are you buying a life insurance policy for securing your family’s future and financial safety? Are you aware of the insurance claim settlement ratio of the company you are considering? CSR or Claim Settlement Ratio is one of the most crucial indicators of the life insurance company’s performance in insurance claim settlement. Before understanding, how CSR is so important or how it is being calculated, let’s understand a little about the claim and other factors.

What is a Claim?

When the family of the insured person intimates the insurance company about the loss (death) of the insured, the company start reviewing the details and after verification, the payment is made. The intimation is the claim raised by the company for their payment of the insured amount. The company checks the terms of the policy and review the claim before making any payment to the nominee/family or to the insured person in case of maturity of the policy.

Claim occur under two situations for a life insurance policy and that are

  • Death Claim: This is the reason for which life insurance policies are bought that if the insured person loses his or her life, the family members get financial support of a lump sum amount from the insurance company to the extent of sum assured. This claim so arises when the insured person dies out of accident or critical illness like in case of Term Plan insurance.
  • Maturity Claim: There are some of the life insurance policies which pay either on the loss of life of the insured or on the maturity of the policy. If the insured person survives the term of the policy then he or she can claim the money after the maturity of the policy from the life insurance company.

What is Claim settlement ratio?

Claim Settlement Ratio or CSR is the total number of claims settled by the insurance company against the total number of claims received by it within a year.

CSR= Total number of claims settled/Total number of claims received.

Calculation of CSR

Let us assume a life insurance Company XYZ Pvt. Ltd. settled 1000 claims in the year 2015-16 out of 1200 claims which it received in the year.

Therefore; CSR= (1000/1200)*100 = 83.33%

Then the Claim Rejection Ratio = 100/1200*100 = 8.33%

And Claims Pending Ratio= 100/1200*100 = 8.33%.

How Claim settlement Ratio help in understanding the Insurance Company?

Claim Settlement Ratio helps the policyholder to understand the genuineness of the life insurance company. The insurance companies might not pay the sum assured to the insured person or his family when they claim the money. It mainly happens if the insurance company found

  • The insured person is trying to cheat the insurance company by claiming money on false ground; or
  • The policy’s terms is not accordance with the claim the insured person or his legal heirs are making; or
  • There is any misinterpretation of the circumstances of the policy; or
  • There is a dispute regarding the legal heirs of the insured person.

But if the life insurance claim settlement ratio is too less and not at par with the industry average then it might be a concern for the policyholder. If the company is rejecting the claims on genuine grounds as mentioned in the above pointers, then it is fine but if the company is involved in fraudulent activities of not paying the sum assured to the insured even when the claims are genuine, the insurance company cannot be trusted.

Insurance claim settlement ratio gives a clear cut indication of the performance of the insurance company on the basis of the proportion of claim settlement and the time it takes to settle the claims. The insurance companies who settle the claims within 30 days of the submission of the application of claim are regarded as better companies along with high CSR.

Few limitation of CSR

  • It is a percentage but not an actual figure. An actual figure of the number of claims not settled against the number of claims made would give a better idea about the company’s performance in settling claims.
  • In the earlier years of any life insurance product, CSR is not a good indicator of performance. It is a better indicator in the later years.
  • CSR is not constant, it changes every year. So any investor or policyholder needs to keep an eye on the change of CSR before buying the policy.

Statistical Data of Insurance companies in India with their claim settlement ratio

The leading life insurance company on the basis of CSR is LIC (98.33%), the second is Max Life (96.94%), third on the list is Tata AIA (96.80%), fourth is ICICI Prudential (96.20%) followed by Aegon Life (95.31%).

Conclusion

When a policyholder is buying a life insurance policy it means that he is concerned about his family and financial stability. But if he buys any policy without analyzing its CSR and other factors then the policy might be of no help in the time of need. Analyzing the insurance claim settlement ratio is highly advised to all the policyholder or the ones thinking of buying new life insurance policy for optimizing the chances of having their claims settled during the hours of need.

Harjot Singh Narula

Harjot Narula is founder and CEO of ComparePolicy.com, an IRDAI approved insurance web aggregator focussed on selling online insurance for companies. Harjot has more than a decade of experience in software development and has also spent 5 years in US working for the mortgage and risk management industry.

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