For a common man, judging insurance products isn’t that easy because there are many underlying facts and figures to understand. But claim settlement ratio is one of the most simple as well as crucial factors to judge any insurance company and its products. It is basically the number of claims settled by the number of claims made to the insurance company.
CSR = Total numbers of claims Settled/Total number of Claims made
Let’s take an example: Assume an insurance company named XYZ received 5000 claims in a year and it passed 4800 claims in the same year supposedly financial year 2015-2016.
Therefore, CSR= (4800/5000)*100= 96%.
On the other hand, Claim Rejection Ration will be (5000-4800)*100/5000= 4%
If there are any claims which are yet to be processed in the same financial year, in which the claim is made then the pending ratio would be
Suppose 100 claims are pending; then Pending Ratio = 100/5000*100= 2%.
The calculation of these ratios is pretty simple and IRDAI has made it mandatory to keep it simple so that any layman who is interested in buying insurance can calculate these ratios especially CSR and take a fair decision.
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Importance of Claim Settlement Ratio
Claim settlement Ratio helps the customer to understand the insurance company better and the way they operate and whether the insurance company is genuinely serving their customers or not. To put it in a simple way, if the claim settlement ratio is high, then the company can be trusted and if the claim settlement ratio is lower you must reconsider your decision of buying insurance from that particular insurer.
But there are a few facts that lead the insurance company to reject the claims made by customers.
- Fraud: There are many customers who want to take advantage of the insurance policy and make money. The insurance companies make thorough analyses to avoid such losses and also reject many claims which are made by the customer to defraud the company.
- Misinterpretation: Insurance claims can be rejected if the insured cannot able to answer the questions in the insurance application form while buying insurance.
- Contracts: It is one of the common reasons for claims rejection and that is the clauses are not understood by the customers and they make claims which are not an application or cannot be passed.
- Nominee/ Legal Heirs: During the settlement of the claim, especially death claim, legal heirs or nominee has to be present otherwise the claim cannot be approved. Many claims are rejected on the grounds of not having a proper nominee.
Five Crucial Things about Claim Settlement Ratio
- Claim settlement ratio is one of the crucial indicators for choosing the insurance company and its policies.
- The calculation of the ratio is simple and can be done by anyone who can access the raw data which is also readily available.
- It is always advised to go for the insurance companies who have higher CSR as it provides a sense of security for your claims being settled.
- Even if the insurance company is offering lower premiums, but if the CSR is lower, don’t get your hands on it. You might run into losses when they don’t settle your claim.
- IRDAI publishes a claim settlement ratio for each of the insurance companies, in India, every year for the benefit of the investors.
Various Insurance Claim Settlement Ratios
There are hundreds of insurance companies that provide different types of insurance products to satisfy the need of people in the country. IRDAI publishes data related to the various facts and figures of these insurance companies and the claims settlement ratio is a part of these data. Different claim settlement ratios for different types of claims like the claim settlement ratio of term insurance, health insurance, life insurance are published every financial year.
The leading top 5 insurance companies according to CSR in death claims is LIC with 98.33% CSR followed by Max life with 96.95% CSR, Tata AIA with 96.80% CSR, ICICI Prudential with 96.20% CSR, Aegon Life with 95.31% CSR in the year 2015-16.
IRDA Claim Settlement Ratio 2018-19 Life Insurance
Health Insurance Claim Settlement Ratio 2018-19
Why is the CSR important?
Before buying a policy, we need to research about the policy and the insurance company and this is basic homework. Claim settlement ratio is the image of the insurance company, if we want to know who is the best insurance company in the year 2021, how will we know? Claim Settlement Ratio is the only thing with the help of, we can know the performance of the insurance company in a year, and perhaps this is the reason why Claim Settlement Ratio has been described as the image of the insurance company.
Keeping in mind the well-being of its customers, IRDA releases the Claim Settlement Ratio Report of each insurance company every year so that the customers know the performance of the front company before buying the insurance.
How do you know what a good CSR is?
Well, it is not very difficult to find out because in this report the one who is considered better whose score is higher than 95%, usually not all the companies reach this figure and the insurance company which reaches here would mean That company has performed very well in that individual year.
Where can I find the CSR for different insurance companies?
There are two ways to get the answer to this question, first, you go to the official website of any insurance company you want to know about the claim settlement ratio report and you will know from that website. Apart from this, to know the claim settlement ratio of any insurance company, you can also find out from the website of IRDA.
Conclusion
In India, in the year 2015-16, insurance business from non-life insurance was 21% whereas 79% share came from the life insurance business. The share of India in the global life insurance market grew from 2.08% in 2014 to 2.24% in the year 2015-16 as per IRDAI reports Insurance is regarded as the safest financial instrument for investment and saving but since there are so many jumping into this business trying to reap profit, there are chances of fraud. To understand the insurance company and its business, the claim settlement ratio plays an important role. This simple ratio not only helps in judging the company but as there are different CSR available like claim settlement ratio of term insurance and others, you can also choose the right policy and plan for your future’s financial safety.