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  • Claim Settlement Ratio for Life Insurance

    IRDA, the Insurance Regulatory and Development Authority of India, publishes the Claim Settlement Ratio for life Insurance companies each year. And this is valid till the next year, when the updated report is released. Claim Settlement Ratio is a ratio of the number of claims paid to customers by the insurance company to the total claims received by the company. This is expressed as a percentage.

    Claim Settlement Ratio = (Total claims approved and paid)/(Total claims received by the insurer)*100

    The balance claims are rejected for impersonation, misrepresentation, fraud, or pending decision by the Life Insurance Companies. The claim settlement ratio is measured for one financial year for all life insurance products of a company.

    Let us take the example of an insurance company that has received 1,300 death claims under life insurance between 1 April 2016 and 31 March 2017. Out of these claims:

    • The company paid 1250 claims to the beneficiaries of the dead.
    • The insurer rejected 20 claims
    • The company has not yet taken a decision on the remaining, i.e., 30 claims

    In this scenario, the claim settlement ratio of the company for its life insurance business is (1250/1300)*100 = 96.15%.

    The claim rejection ratio or claim repudiation ratio is (20/1300)*100 = 1.5%.

    The claim pending ratio of the insurer is (30/1300)*100 = 2.3%.

    It should be noted that the claim settlement ratio is always expressed as a percentage and it is easy to measure. It is highly recommended to assess the claim settlement ratio of an insurance company before buying a product. This will help you get a clear picture of the way claims are handled by the company and its position in the market.

    The claim settlement ratio of life insurance companies is consolidated in a report and is published at the IRDA website under the Annual Reports section. The report also has information regarding the premiums collected by the insurer and the split of linked and non-linked premium.

    Claim Settlement Ratios of Life Insurance Companies for 2016-17:

    The overall claim settlement ratio for the life insurance industry stands at 97.74% for the year 2016-17. This is an improvement from the ratio of 97.43% for 2015-16. The claim repudiation ratio has also come down to 1.45% when compared to the figure of 1.73% in 2015-16.

    The IRDA report also indicates that the claim settlement ratio of LIC stood at 98.31% at the end of March 2017, while it was 98.33% on 31 March 2016. The repudiations for LIC have reduced marginally, and it now stands at 0.97% as opposed to 0.98% at the end of the financial year 2015-16.

    For all private insurance providers, the claim settlement ratio has seen a definitive increase by 2.24%. The ratio is 93.72% for the financial year 2016-17, while it was 91.48% for the previous fiscal. There is also a decrease in repudiations, and the figure is 4.85% for 2016-17. This value was 6.67% for the financial year 2015-16.

    The claim settlement ratio for individual policies of life insurance companies for the financial year 2016-17 are as follows:

    Claim Settlement Ratio for 2016-2017 for Individual Policies
    Insurer Death claims received Death claims paid Claims rejected/repudiated Claims written back Claims pending Claim Settlement Ratio (CSR)
    LIC 76,9386 75,6399 7,432 2,352 3,203 98.31%
    Bajaj Allianz 16,239 14,887 932 357 63 91.67%
    Reliance Life 11,079 10,473 529 42 35 94.53%
    SBI Life 17,610 17,027 451 0 132 96.69%
    ICICI Prulife 10,901 10,539 305 21 36 96.68%
    HDFC Std 12,725 12,421 244 0 59 97.62%
    Max Life 9,821 9,606 212 0 3 97.81%
    Birla Sunlife 6,048 5,727 240 33 48 94.69%
    Tata AIA Life 2,707 2,599 108 0 0 96.01%
    Exide Life 2,973 2,866 107 0 0 96.40%
    Kotak Mahindra 2,831 2,583 99 130 19 91.24%
    PNB Metlife 3,879 3,380 357 34 108 87.14%
    Future Generali 1,366 1,233 126 0 17 89.53%
    Shriram Life 2,926 1,859 774 0 293 63.53%
    Aviva Life 1,245 1,128 110 0 7 90.60%
    India First Life 1,741 1,439 273 0 29 82.65%
    Star Union Daichi 1,473 1,238 200 16 19 84.05%
    Bharti Axa Life 878 811 33 0 34 92.37%
    IDBI Federal Life 1,065 962 96 0 7 90.33%
    DHFL Pramerica 471 428 36 1 6 90.87%
    Sahara Life 725 654 45 0 26 90.21%
    Canara HSBC 653 620 32 0 1 94.95%
    Aegon Religare 588 571 17 0 0 97.11%
    Edelweiss Tokio 164 153 11 0 0 93.29%

    How to Interpret the Above Data?

    The above data can be interpreted in the following ways:

    • The CSR higher than 80% is a good claim settlement ratio. If a company of more than 90% CSR is offering a great value product, it is more than welcome.
    • Also look at the average claim settlement time taken but the company. This is a great indicator of the process efficiency of the company. Anything less than 30 days is good and anything less than 20 days is excellent.
    • The pending claims could be due to genuine reasons and do not read too much into it.
    • If the sale of life insurance is higher, the average value of the claim paid will also be higher.
    • It is found that claim denials are maximum during the first two policy years. In life insurance these are referred to as early claims. New insurance companies are seen to have more early claims in comparison to old life insurance providers. Hence, claim settlement ratio is lower for newer companies.

    Use the claim settlement ratio as a filter while buying a life insurance plan. Although selecting a company with a high claim settlement ratio is advised, you may still face a scenario in which your claim is rejected. So how do you ensure that your claim is not invalidated?

    You can take several steps to enjoy the benefits of your policy without having to face claim rejection. It all begins when you sign on the dotted line at the time of policy purchase. That is the time when the insurance company would assess the risk you pose and underwrite the policy accordingly. Listed below are some steps to ensure a seamless claim settlement experience:

    1. Make full disclosure of your details. If you forget to mention about your smoking habits or a pre-existing medical condition, the way in which the insurer assesses your risk will differ. In case the insurance company realises this at the time of a claim, it could be rejected.
    2. The policyholder should be familiar with the insurance application form and ideally fill it out on his/her own. It is not a good practise to get the insurance agent to fill out the form. The agent may not be aware of the customer’s personal details and may miss out on mentioning something on the form.
    3. The buyer should review the policy documentation during the free-look period and check if all the terms and conditions are as per his/her expectations. In case he/she is dissatisfied with any of the clauses, he/she can return the policy back to the insurer for a refund.
    4. As soon as the buyer has bought the policy he/she should inform the nominee of the same. If there arises a situation in which the nominee is required to raise a claim under the policy, he/she should follow the prescribed claim filing process. If the claim filing is done accurately, the claim settlement process is also faster.

    In conclusion, the claim settlement ratio of a life insurance provider is a reliable indicator of its capacity to honour claims, but the ratio could be skewed based on several conditions. So, do not limit your research to the claim settlement ratio when deciding on an insurer. You can compare the coverage offered by multiple plans from different insurance companies and settle on one that suits you best.

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