Importance of Life Insurance Claim Settlement Ratio While Buying Insurance

When you compare a life insurance policy from different insurance companies, you may focus mainly on the premium amount, the coverage offered, inclusions, add-on covers provided, etc. Apart from these, you must also consider another critical factor – the claim settlement ratio of the insurer.The claim settlement ratio can be defined as the number of claims successfully settled by the insurance company against the number of claim applications they receive within a specific period. The claim settlement ratio is usually reflected in percentage, and its calculation is easy to understand. Claim Settlement Ratio = total number of claims approved / total number of claim application received

If the insurance company received a total of 100 requests in a year and 90 were settled successfully, the claim settlement ratio of the insurer is 90%.You can easily check the claim settlement ratio of the insurer on the Insurance Regulatory and Development Authority of India (IRDAI) website. The regulatory body publishes the CSR report of all insurance companies at the end of every financial year. Apart from publishing the CSR report, IRDA also publishes the annual report relating to the claim rejection ratio and the claim pending ratio.According to experts, a CSR of 80% or more is a good percentage for a life insurance company as it reflects that the insurer has addressed the maximum number of claims they have received. A higher settlement ratio indicates that the insurer honours the commitments made to the buyer at the time of purchasing the life insurance policy. Apart from reflecting the insurance company's commitment to honour the claims, a higher CSR also reflects the insurance company's financial stability. As in the above example, where the company settles 90% of the claims, it tells the customers that the company's finances are secure and willing to pay the claims of so many customers. Thus, CSR plays an important role in winning the customer's trust and confidence in the company.Also, the higher CSR reflects the insurance company's superior underwriting process. Underwriting is the process of evaluating the policy buyer's application and determining the risk factor based on their medical and financial information.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.