Claim Settlement Ratio for Life Insurance

Claim Settlement Ratio is basically a ratio of the number of claims paid to the customers by the insurer to the total number of claims received by the company. Few claims are rejected for reasons like impersonation, fraud, misrepresentation or pending decision by the Life Insurance Companies. The Insurance Regulatory and Development Authority of India (IRDA), publishes the Claim Settlement Ratio for each life Insurance company operating in India every year. The data remains valid until the next year when an updated report is released.  The claim settlement ratio is expressed as a percentage:

• Claim Settlement Ratio = (Total number of claims approved and paid)/(Total number of claims received by the insurer) x 100

Let us look at the example of an insurance company that had received 1200 death claims under life insurance in FY 2016-17. Out of the 1200 claims,

• the company settled and paid 1150 claims to the beneficiaries or nominees of the deceased.

• the insurer rejected 15 claims

• the company is yet to decide on the remaining 35 claims

In such a scenario, the claim settlement ratio of this insurance company in life insurance is:

• (1150/1200) x 100 = 95.83%.

The claim rejection/repudiation ratio is:

• (15/1200) x 100 = 1.25%.

The claim pending ratio is:

• (35/1200) x 100 = 2.92%.

The claim settlement ratio is easy to measure. It always expressed as a percentage. It is highly recommended that potential customers assess the claim settlement ratio of an insurer before deciding to purchase a product. This will help the customers get a clear picture of the company's position in the market and the way is handled claims.

The IRDA website lists the claim settlement ratio of life insurance companies in India under the Annual Reports section. This report also contains information on the premiums collected by the insurer.

Claim Settlement Ratios of Life Insurance Companies (2016-17)

The overall claim settlement ratio of the life insurance industry stood at 97.74% for the FY 2016-17. It was a slight improvement from the previous year's record of 97.43%. The claim repudiation ratio has also decreased to 1.45% as compared to 1.73% in the previous financial year.

The IRDA report indicates that LIC's claim settlement ratio stood at 98.31% at the end of FY 2017, while it was 98.33% in 2016. However, the repudiations ratio reduced marginally from 0.98% to 0.97%

For all private insurers, the claim settlement ratio considerably increased by 2.24% from 91.48% to 93.72%. Repudiations decreased from6.67% to 4.85%

This table displays the claim settlement ratio of individual policies of life insurance companies in FY 2016-17.

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%

Interpreting the Above Data

If the CSR is higher than 80%, it is considered a good claim settlement ratio. Companies with more than 90% CSR is thus offering a product of great value product.

The average claim settlement time taken by the insurer is also crucial and indicates the level of process efficiency of the insurer. Claims settled within 30 days is considered to be good, and if it is done within 20 days, then it is excellent.

The pending claims might be due to genuine reasons.

If the company sells a large number of insurances, then the average value of the claim paid is also high.

Most claim denials are the first two policy years as such claims in life insurance are regarded as early claims. New insurance companies typically have more early claims and thus their claim settlement ratio is comparatively low.

Customers must use the claim settlement ratio as a filter when they are purchasing a life insurance policy. However, selecting an insurer with a high claim settlement ratio doesn't ensure that the claim will not be rejected. So how should customers ensure that their claims are not invalidated?

Before issuing a policy, insurance companies assess the risk a customer may pose and underwrite the policy accordingly. This is when you can take a few steps to ensure that your future claims are not rejected. These are a few steps that a customer can take to enjoy the benefits of a policy without fearing the risk of claim rejection:

Disclose all your details completely. Trivial things like your smoking habits or some pre-existing medical condition determine the way in which the insurance company assesses your risk. If at the time of a claim, the insurance company realizes any foul play, your claim could be easily rejected.

You must be familiar with the insurance application form. Ideally, you must fill it out on your own instead of getting the insurance agent to fill it out on your behalf. The agent may not be aware of your personal details. If he misses out on mentioning something important on the form, you might have to pay the price later.

You should review the policy documents during the free-look period to check and ensure that all the terms and conditions are as per your expectations. In case you are dissatisfied with any of the clauses, you can return the policy to the insurer and get a refund.

Immediately after purchasing the policy, you should inform the nominee about it. If a situation ever arises when the nominee has to raise a claim, they should know and follow the procedure. Accurately filed claims are processed and settled quickly.

To sum up, we can say that the claim settlement ratio of an insurer is a reliable indicator of the company's capacity to honor claims. However, the records could be skewed due to several reasons. So, you mustn't limit your research to the claim settlement ratio while deciding on an insurer. It is always better to compare the coverage offered in multiple plans by different insurance companies and choose the one that suits you best.