WHAT IS THE CLAIM SETTLEMENT RATIO?

The claim settlement ratio is the percentage of claims that an insurance provider has paid out in an FY compared to the number of claims received. This metric is regarded to be reliable for determining if an insurance provider comes to the rescue when the circumstance goes odd. It is always advised to go for a high claim settlement percentage provider as it will improve insurees chances of getting their claims accepted and settled by the company. Companies with a claim settlement ratio of 95% and above are taken as secure because the insurer is great at paying the claim amount to most customers.

WHY CLAIM SETTLEMENT RATIO IS IMPORTANT?

1. Indicates the insurer’s reliability and goodwill:

This ratio indicates the ability of the insurer to pay the sum assured to the policyholder or their nominee. If an insurer is maintaining a consistent high CSR over a decent tenure, they are unlikely to make a default on their commitment.

2. It helps the financial security of the family:

The primary aim of buying term insurance is to ensure financial protection against unforeseen events. This purpose will be defeated if the insurer does not complete his commitment and provide the claim. On the other side, if the insurer has good CSR and honors most of the claims, you and your family are more likely to have a transparent, easy, and quick claim process.

FACTOR INFLUENCING CLAIM SETTLEMENT RATIO

1. Fraud:

If the insurance provider suspects any fraudulent activity or the authenticity of the policyholder, they may end up rejecting the claims thereon and this will impact the CSR negatively.

2. Nomination mistake/update:

In case the insuree fails to mention any nominee while initiating the policy, it will affect the insurer because when processing the claims, it will be difficult for the insurer to determine the legal heir. No claims will be settled in case of disputes regarding the nominee.

3. Non-disclosure:

When purchasing an insurance policy, it is important to share valid information with the insurer. Any health concerns should be mentioned while purchasing the policy. In case you happen to hide certain adverse conditions that you may be suffering and the insurer finds it out later, it will affect your claim as it may get rejected. And this in turn will leave a negative impact on CSR.

4. Ignorance:

At times, the insuree may not understand the T&C mentioned in the policy document. Any misunderstanding or ignorance needs to be addressed immediately before it impacts CSR.

CALCULATION OF CLAIM SETTLEMENT RATIO

CSR is calculated with the below formula:

CSR = [total no. of claims settled/total no. of claims)] X 100

For instance, a company R settles 19,000 claims out of the 20,000 claims for 2020-21. It’s CSR will be (19,000/20,000*100)

CSR = 95%

WHAT IF YOU BUY INSURANCE FROM INSURER HAVING LOW CSR?

1. Claim Rejection:

One of the most evident risks that the policyholder will face is the rejection of claims. During challenging and unfortunate times, if the claim is rejected, the dependents will have no financial security.

2. Nobody to follow up the request:

In case of rejection of the claim, awareness regarding the follow-up process of claim settlement is very important. And an entity with low CSR may not be able to attend follow-up requests efficiently.

3. Financial Crises:

If the sole bread earner of the family is no more and the claim is rejected by the insurance provider, the family might face a financial crisis and won’t be able to come out of it easily. So one should always opt for a provider having good CSR.

SETBACKS OF CLAIM SETTLEMENT RATIO

1. Number, not Value:

The CSR does not speak about the volume of claims settled i.e. the total amount they paid, only the numbers are taken into the consideration. It may be possible that an entity having a high CSR is not having an equally good CSR in terms of value.

2. No reflection of the quality of claim experience:

The CSR does not signify the quality of the claim experience, settlement process, and time is taken to settle them. There is a possibility that an insurer with high CSR is taking an average of 45 days to settle a claim and the other one having slightly low CSR settles the claim in a week.

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