Buying an insurance policy is already a difficult thing, especially for first-time policyholders.
However, the sheer number of insurance providers available in the market adds a whole new level of difficulty to this process. In order to get a good understanding of the insurance provider, this article will offer 6 ratios that you need to know to make an educated decision. Top 6 Ratios to Know When Insurance Shopping
List of the top 6 ratios to know when buying insurance policies
The persistency ratio can be defined as the fraction of insurance plans that paid their premiums on time during the year to the total number of active insurance policies. This ratio displays how many policyholders settle their premiums on time for their contracts with the insurance provider. The figure typically indicates how long consumers stay with the insurance. As a result, it would not be incorrect to consider an indication of the company's total client happiness. In basic terms, looking at the causes of why someone would cease paying insurance premiums paints a good overview.
Whenever you get life insurance coverage, the insurer guarantees to pay a specified sum to your beneficiary in the event of an unanticipated occurrence.
Consider the example of natural disasters such as earthquakes, floods, and tsunamis. As a consequence of such an occurrence, the corporation may confront a greater number of insurance claims than expected. In this case, the insurance provider's ability to satisfy claims is determined by its solvency or economic capability. In essence, an insurance provider's solvency refers to its financial ability to pay its commitments. The financial status of insurance firms may thus be determined by looking at their current solvency ratio. A high ratio indicates that the firm is financially strong and has sufficient resources to settle any valid insurance claims.
A combined ratio calculates the amount of money that leaves an insurance firm in the format of dividends, losses, and expenses. Losses reflect the insurer's policy-writing discipline. The expenditure ratio measures an insurer's effectiveness and how efficiently it utilises its assets to promote top-line growth. Since it gives a complete estimate of an insurance provider's profitability, this combined ratio can be considered one of the most important indicators one needs to check before policy acquisition.
Generally, the combined ratio is reported as a percentage value. A ratio of less than 100 percent implies that the firm is generating an underwriting gain, whereas a ratio of more than 100 percent shows that the business is giving out more revenue in claims than it is getting in premium amounts.
Incurred claims ratio
An Incurred Claim Ratio or ICR is the ratio of the entire claim amount settled by the insurance provider to the overall premium amount obtained in a fiscal year. An incurred claim ratio reflects the insurance firm's financial stability. It demonstrates the insurance provider's financial ability to settle insurance claims. If an insurance firm's incurred claim ratio is greater than 100%, it signifies that the firm is paying further towards claim payment than it receives in premium amounts. In the same way, if the incurred claim ratio is less than 100%, it shows the company is paying insurance claims while maintaining a clear gain from the premium collection.
Commission expense ratio
This percentage indicates how the percent of the premium is spent on commissions. This percentage may have an effect on the premium you have to pay. The greater the commission expense percentage after a certain level, the smaller the discount is granted, resulting in a larger premium charged. Reduced premiums are frequently associated with a lower commission expense ratio. Many insurers, however, do not transfer it to customers, keeping premiums constant.
Claim settlement ratio
A Claim Settlement Ratio or CSR is the overall number of claims resolved by an insurance provider as a percentage of total claims filed. For example, if the SBI life claim settlement ratio is 92%, it means that the insurance provider honoured roughly 92 claims out of each 100 claims filed. This claim settlement ratio serves as an indication of an insurance firm's hygiene. It may be used to determine the likelihood of an insurance company settling your claim. The greater the life insurance claim settlement ratio is, the more likely it is that your claim will be honoured. You can look for a company's CSR online by searching 'IRDA claim settlement ratio 2022'.
The Bottom Line
These above-mentioned ratios can help you choose your ideal insurance provider. Make sure you check them for every insurance provider you consider when shopping for an insurance plan online.