A life insurance policy is a two-way contract between the insurance company and the insured based on the principle of utmost good faith. The insured (whose risk of life is covered by the insurance company) promises to pay the premium as per the policy contract terms and conditions. On the other hand, the insurance company promises to pay the claim which arises due to either death of the insured during the policy term or on the maturity of the policy contract (whichever is earlier).
Settlement of death claim by the insurance company is all the more important for the dependents of the insured as it compensates the family of the deceased financially when it is needed the most. This is the crucial and fundamental reason why anyone would buy a life insurance policy. To ensure financial protection for his/her dependents in case of one’s untimely demise is the crux of buying a life insurance policy.
How sure are you that the insurance company is inclined to pay the death claim before you decide to buy a life insurance policy? The inclination or likelihood of an insurance company towards the payment of a death claim can be ascertained with the help of the “CLAIM SETTLEMENT RATIO” (CSR) of the insurance company.
NOTE: Latest IRDAI Annual Report of Claim Settlement Ratio for FY 2018-19
Table Content
- What is Claim Settlement Ratio (CSR)?
- Past 5 Years Claims Settlement Ratio for the Life Insurers
- How Claim Settlement Ratio (CSR) is measured?
- Why Is It Important to Analyze CSR?
- Past CSR Trends Important to Scrutinize an Insurance Company –Consistency is the Key!
- Why CSR is all the more important to be Considered if You are buying a Term Insurance Plan
- Higher the Ratio, Better is the Insurance Company
- Important Facts which could Impact the CSR
- Related posts:
What is Claim Settlement Ratio (CSR)?
The claim settlement ratio is the indicator of the number of death claims settled by an insurance company over the number of total claims reported in a given financial year. The number of death claims settled and reported are for all types of life insurance policies (be it a term plan, saving plan, investment plan, etc.) sold by the insurer collectively.
Claim settlement ratio is an important pointer that cannot be skipped as it suggests the likelihood and efficiency of settlement of claims by an Insurance Company. It is a vital parameter for the customer to analyze the Claim settlement ratio before finalizing the life insurance plan along with other important factors like premium, plan benefits, key features, etc. The claim settlement ratio is calculated for every financial year for all the life insurance companies and is published in the IRDAI’s Annual Report which can be seen on the regulator’s website.
Past 5 Years Claims Settlement Ratio for the Life Insurers
| S. No | Insurer Name | CSR% 2015-16 | CSR% 2016-17 | CSR% 2017-18 | CSR% 2018-19 | CSR% 2019-20 |
| 01 | Max Life | 96.95 | 97.81 | 98.26 | 99.22 | 99.22 |
| 02 | HDFC Life | 95.02 | 97.62 | 97.80 | 99.04 | 99.07 |
| 03 | Tata AIA Life | 96.8 | 96.01 | 98.00 | 99.07 | 99.06 |
| 04 | Pramerica Life | 83.64 | 90.87 | 96.62 | 96.80 | 98.42 |
| 05 | Exide Life | 89.36 | 96.40 | 96.81 | 97.03 | 98.15 |
| 06 | Reliance Nippon | 93.82 | 94.53 | 95.17 | 97.71 | 98.12 |
| 07 | Bajaj Life | 91.3 | 91.67 | 92.04 | 95.01 | 98.02 |
| 08 | Aegon Life | 95.31 | 97.11 | 95.67 | 98.01 | 98.01 |
| 09 | ICICI Prudential | 96.6 | 96.68 | 97.88 | 98.58 | 97.84 |
| 10 | Aditya Birla Sunlife | 88.45 | 94.69 | 96.38 | 97.15 | 97.54 |
| 11 | Aviva Life | 81.97 | 90.6 | 94.45 | 96.06 | 97.53 |
| 12 | Bharti AXA | 80.02 | 92.37 | 96.85 | 97.28 | 97.35 |
| 13 | Canara HSBC | 92.99 | 94.95 | 95.22 | 94.04 | 97.35 |
| 14 | PNB Metlife | 85.36 | 87.14 | 91.12 | 96.21 | 97.18 |
| 15 | Star Union | 80.73 | 84.05 | 92.26 | 96.74 | 96.96 |
| 16 | LIC | 98.33 | 98.31 | 98.04 | 97.79 | 96.69 |
| 17 | India First | 71.87 | 82.65 | 89.83 | 92.82 | 96.65 |
| 18 | IDBI Federal | 84.70 | 90.33 | 91.99 | 95.79 | 96.47 |
| 19 | Kotak Mahindra Life | 89.09 | 91.24 | 93.72 | 97.40 | 96.38 |
| 20 | Future Generali | 90.26 | 89.53 | 93.11 | 95.16 | 95.28 |
| 21 | SBI Life | 93.39 | 96.69 | 96.76 | 95.03 | 94.52 |
| 22 | Shriram Life | 60.24 | 63.53 | 80.23 | 85.30 | 91.61 |
| 23 | Sahara India | 90.3 | 90.21 | 82.74 | 90.16 | 89.45 |
| 24 | Edelweiss Tokio | 85.11 | 93.29 | 95.24 | 95.82 | 83.44 |
Source: CSR for the FY 2015-16 to 2019-20 has been extracted from the respective IRDAI’s Annual Reports.
How Claim Settlement Ratio (CSR) is measured?
The Claim Settlement Ratio is expressed as the number of claims settled divided by the total number of claims reported in a given financial year, including the claims outstanding at the beginning of the financial year. The claim settlement ratio is expressed in percentage which is helpful for comparing the claim settlement data by the customer across insurers.
| Claim Settlement Ratio = Total claims settled / Total claims received* Where Total Claims received * = (Claims reported in the financial year + claims pending at the start of the year) |
Let us understand CSR with an example:
| Total Death Claims Reported in the Financial Year | 98 |
| Number of Claims Settled in the Financial Year | 95 |
| Claims outstanding at the beginning of the Financial Year with the insurance company | 2 |
| Claim Settlement Ratio | [95/ (98+2)] *100 = 95% |
| Claims Rejection Ratio | 5% (100% – Claims Settled% = 100 – 95) |
Why Is It Important to Analyze CSR?
The crux of buying a life insurance policy is with an intent to provide financial security to the family of the life insured as discussed earlier. Financial security comes into the picture in the case of an untimely or unfortunate demise of the life insured. The settlement of death claims by the insurance company is the most important and essential event in times of distress for the family members of the deceased. If the death claim proceeds are not received by the nominee of the insured (assuming the policy is in premium-paying status) then the entire purpose of premium payment and buying an insurance policy goes in vain.
Claim Settlement Ratio thus showcases the likelihood and friendly approach towards the claim settlement philosophy of the life insurance company. It also highlights the financial strength of the insurance company to pay the claims by maintaining adequate reserves and surplus. The higher the claim settlement ratio, the better is the insurance company. A good claim settlement ratio depicts the strong claim settlement philosophy of the insurance company favoring its customers by the timely dispersal of the death claim proceeds.
Therefore, the claim settlement ratio is an important yardstick to make up your mind whether the insurance company can be trusted for the settlement of claims based on its current and past claims settlement figures before you sign a policy contract with them.
Past CSR Trends Important to Scrutinize an Insurance Company –Consistency is the Key!
As stated earlier also that the Claim Settlement Ratio is not a stable figure and keeps changing every financial year. The best way to look at CSR as an important factor before buying a life insurance policy is to study and analyze the past financial year’s data regarding the claim settlement. Looking at the current year claims settlement ratio figure is imperative, but that does not signify that the company has performed well in settling the claim in the past or in the near future. Since every year there could be a different matrix that could affect the CSR of the insurance company.
Overall consistency in the claim settlement ratio is something that would impart weightage to this parameter as a deciding factor for buying insurance or not from the respective insurer. Consistency of the CSR year on year is an ideal way to give preference to the insurance company. Consistency to maintain a higher claim settlement ratio is considered to be good. Past claims settlement ratio trends will reveal the consistency and inclination of the insurer towards the settlement of death claims.
Why CSR is all the more important to be Considered if You are buying a Term Insurance Plan
The Term Insurance plan is the pure protection plan which signifies the fundamental reason to buy a life insurance plan. The Term insurance plan offers only a death benefit wherein if the insured dies during the policy term, the insurance company pays the sum assured or the life cover to the designated nominee/nominees. Since this kind of life insurance plan offers only death benefit and there is no maturity benefit, the premiums are cheaper as compared to other types of life insurance policies like ULIPs, endowment, money-back policies. One can opt for a higher sum assured’s of Rs 25 Lakhs, 50 Lakhs, 1 crore or more at the most economical premium cost due to the availability of only death benefit under such type of plan.
It becomes all the more important to look upon the Claim settlement ratio of the insurance company as settlement of death claim is the most important event under a Term Insurance Policy. The dependants of the deceased rely to a large extent on the death claim proceeds of the term insurance policy to live a financially peaceful life ahead after the unfortunate demise of the insured. Ensuring financial protection to the dependants in the event of untimely death is the sole reason why anyone has opted for a Term Insurance Policy.
The basic features in term insurance plans across the industry are more or less similar. There are no fancy benefits like bonuses, guaranteed additions, money backs under a term insurance plan. Thus, the Claim Settlement Ratio (as a parameter) to decide the insurer gets more weightage in case of buying a Term Insurance Policy as compared to other types of policies.
Higher the Ratio, Better is the Insurance Company
The higher claim settlement ratio depicts the greater settlement of death claims by the insurance company out of the total death claims reported. Higher the number of CSR better are the prospects and likelihood of the settlement of a death claim by the insurer. A lower claim settlement ratio implies that the insurer has rejected a large number of claims out of the total reported. Now, rejection of claims could be due to many factors which are important to be looked upon. Claim settlement Ratio is raw data and it could not be considered as a stand-alone factor to decide the life insurance company for buying a life insurance policy.
Important Facts which could Impact the CSR
Let us analyze some important and fundamental facts which could affect the Claim Settlement Ratio for an Insurance Company.
Fraudulent Claims: At times, there are policyholders who have not disclosed the correct and important information in the urge of getting the life insurance policy. It could be, not disclosing the pre-existing medical condition, existing insurance policies, wrong information regarding the details asked in the proposal form, etc. Such frauds, caught at the claims stage through an investigation by the insurer may result in rejection of the claim. The rejection of such claims decreases the claim settlement number which further decreases the overall claim settlement ratio.
Misrepresentation at the Proposal Stage: Misrepresented facts and information at the time of taking the insurance policy could also affect the decision of the insurance company for the issuance of the life insurance policy to an individual. Such misrepresentation could be intentional or non-intentional. However, if the insurance company is able to prove it is intentional, the claim could be rejected on the grounds of misrepresentation.
| Section 45: As per section 45 of the Insurance Act,1938, after the expiry of two years from the commencement date, no policy can be called in question by the insurance company on the ground of non-disclosure or misrepresentation of the facts asked in the proposal form. The onus lies on the insurance company to substantiate the fraud with proof to prove that the policyholder was aware of providing inaccurate and wrong facts which could affect the underwriting decision at the time of the proposal stage. |
Incomplete Documentation: For the settlement of a death claim, the beneficiary of the deceased needs to submit requisite documents such as
- Duly filled claim form by the claimant,
- ID proof for the purpose of finding the relationship with Life Insured and the claimant,
- Address Proof and Contact number of the claimant,
- Death certificate issued by local authorities,
- Last Medical Attendance Report (LMA), etc.
In case of incomplete documentation, the insurance company would not be able to process the claim which could lead to rejection of the claim. Rejection of claim reduces the claim settlement number further impacting the claim settlement ratio of the insurer.
Not for a particular type of Insurance: Claim settlement ratio is a collective number depicting the settlement of death claims for all types of policies such as term insurance, unit-linked insurance, endowment, money-back policies, etc. So, one cannot ascertain that for a particular type of life insurance plan (like for Term Insurance plans), what is the exact CSR.
New Insurer’s Data: The new insurance players in the industry usually have a lesser database on settled and reported claims. Since a handful of the life insurance policies has been sold for the new entrants as compared to the insurance companies who are aged in the industry, the intimation of death claims in the initial years may below. It could lead to a lesser claim settlement ratio for them. However, their lower CSR does not imply that the company is not inclined towards the settlement of claims at present or in the future.