While deciding amongst the plethora of life insurance options available in the market, we often tend to not pay enough attention to the claim settlement ratios of companies. Read on to know why it’s vital to consider this factor.
Life is highly uncertain and we need to be prepared for any unexpected situation. By a life insurance policy, the policyholder gets into an agreement or contract with the life insurance company which guarantees to pay a sum assured amount on the sudden demise of the policyholder during the tenure of the policy. For this financial coverage provided by the insurance company, the policyholder would have to pay a premium to the insurance provider.
Hence, Life insurance can be defined as a financial product which provides coverage against risks at the time of emergency. Life insurance policy will ensure that your dear ones lead a financially stable life even when you are not around to support them. Some of the major uses of a life insurance policy can be listed below.
- A lump sum amount is being left for your dear ones to handle their financial expenses like paying off mortgages or completion of education of your children.
- You can even use the money for medical assistance in case of any terminal illness while you are alive.
- You can leave the sum assured amount of your life insurance for some charitable or humanitarian purpose.
The benefits and coverage that can be obtained from a life insurance policy are very much dependent on the life insurance provider from which we decide to purchase your insurance policy. With so many insurance companies with different policies, terms, and conditions of their own, it is a difficult task to select the right insurance provider and get the maximum benefits.
Claim Settlement Ratio
Out of the several factors which are considered for choosing or selecting an insurance provider, one major factor which gives an idea about the actual performance of the insurance provider is the Claim Settlement Ratio (CSR).
Claim settlement ratio for a life insurance company is defined as a measure of the number of death claims that have been settled by a life insurance company in a specific financial year. A claim settlement ratio is always expressed as a percentage.
Mathematically, we can represent claim settlement ratio in a particular financial year as the ratio between the number of claims paid by the insurance provider to the total number of claims the company has received in that specific financial year.
Claim Settlement Ratio= (Total number of claims paid)/ (Total number of claims received by the insurance provider) x100
Let us consider an example to understand Claim settlement ratio in a better manner.
Suppose, a life insurance company has received an aggregate number of 500 claim requests in a year. The number of claims approved and paid by the company is 300.
So, now Claim settlement ratio= (300)/ (500) x100=60%
Let’s say, the insurance provider has rejected 150 claims and another 50 claims are pending.
Now, we can represent the Claim rejection ratio= (150) / (500) x100=30%
Also, Claim pending ratio= (50)/ (500) x100=10%
Claim Settlement ratio tends to be one of the major factors to consider before choosing the insurance provider for a policy. However, complete dependency on the claim settlement ratio for assessing a life insurance provider is not advisable as there are many genuine reasons and causes due to which claims are being rejected by insurance companies.
IRDAI reports for claim settlement ratio
Now the question arises, where does one get accurate data on the Claim settlement ratio? This is an obvious question in the minds of people interested in purchasing life insurance policies. They will face a situation of a dilemma deciding the most trustworthy source for obtaining information on claim settlement ratio of life insurance companies.
The Insurance Regulatory and Development Authority of India (IRDAI) will get its annual report published on the claim settlement ratio of various insurance companies at the end of a financial year. This report by IRDAI can be considered as a trustworthy source to rely upon for the data.
Based on the annual report of IRDAI for the financial year 2017-18, we can present a tabular representation of the claim settlement ratios of the top 10 life insurance companies of India.
|Company Name||Claim settlement ratio|
|Tata AIA Life||98.00%|
|ICICI Pru Life||97.88%|
|Aditya Birla Sun life||96.38%|
The IRDAI also publishes several other annual reports related to the claim rejection ratio and claim pending ratio of the life insurance providers. These reports are really very helpful for the customers to know the actual performance of the insurance companies. According to the annual reports by IRDAI, the claim settlement ratio for insurance policies has been increasing over the years because of the increased awareness among common people regarding their claims and its settlement.
A claim settlement ratio of 80% is considered to be as a good percentage for a life insurance company as it reflects the fact the insurance company has sincerely addressed the maximum number of claims that it has received.
Claim settlement experience
Every policyholder will always want to ensure that his family does not struggle or face any issues while settlement of the claim. But, there are numerous cases of claim rejection occurring daily and it is definitely not a good experience for the customers. However, as said earlier, there are several genuine reasons due to which insurance companies reject the claims.
To enjoy a smooth claim settlement experience, it is inevitable to take care of certain important things by the policyholder. It is necessary for the policyholder to fill up all the required information in the application form correctly. The interested applicant should himself fill the form rather than getting it filled by an insurance agent as agents may not be aware of certain information and might end up filling wrong information. However, with the option of buying life insurance policies online, the process of taking guidance from agents has reduced remarkably.
Complete disclosure of facts and information must be done by the interested applicant while applying for the insurance policy. Suppose, you have the habit of smoking and you may not disclose this information to the insurance company with the intention of paying low premium. But, when the Insurance provider finds out about this later, your claim can get rejected.
Moreover, many claims are not settled because the nominees are unaware of the insurance policy itself. So, the policyholder should immediately inform the nominee about the insurance policy and the benefits from it after the purchase so as to have a successful claim settlement.
Hence, the claim settlement ratio is a trustworthy parameter to assess the reliability of a life insurance company. However, it should not be the only factor to depend upon. Interested applicants should first understand their requirements and can then perform thorough research, compare policies by an aggregator, take opinions from peers and then finally choose the ideal life insurance provider.