Claim Settlement Ratio of Term Insurance Providers

The primary purpose of buying a term insurance policy is to protect dependent family members from potentially devastating financial losses that may occur if something happens to the policyholder. But what if your claim settlement is delayed? That would be another problem for your loved ones in tough times.

The claim settlement ratio showcases your insurer's credibility for settled claims. It is a percentage of claims throughout the financial year that the insurer has settled smoothly. Indeed, while choosing a reliable insurance provider or renewing your existing one, along with checking the premium amount, you must check the insurer's claim settlement ratio.

What is the Claim Settlement Ratio?

The claim settlement ratio is the total number of claims settled versus the total number of claims arisen during the same financial year. The claim settlement ratio (CSR) is applicable for all categories of insurance companies /term-insurance/companies/ such as health, term, life, motor, and much more.

The Insurance Regulatory and Development Authority of India (IRDAI) has set strict guidelines for insurance companies to release CSR data at the end of every financial year.

For instance, assume that the insurance company got 1000 death claims throughout the April 1, 2021, and March 31, 2022, financial year. The insurer has settled 940 claims successfully, 50 were rejected, and 10 are on hold.

Hence, the claim settlement ratio will be 940/1000=94%

The claim rejection ratio=50/1000=5%

The claim pending ratio=10/1000=1%

In the above case study, the insurance company excludes or does not accept the remaining claims of 5 percent. However, the insurer may sometimes reject a claim for several reasons, such as fraud, impersonation, misrepresentation, etc. Undoubtedly, an insurer's claim settlement ratio helps determine the insurance provider's credibility or stability.

How is a claim settlement ratio calculated?

Policyholders can calculate the insurer's claim settlement ratio hassle-free with the given formula:

Claim Settlement Ratio (CSR)=(Total number of claims settled in a year/ Total number of claims in a year) X 100

For instance, Company X settled 9,000 out of the 10,000 claims for 2021-2022. Its CSR will, thus, be 90% (9,000/10,000*100).

Types of Claims Counted to Calculate the CSR

For calculating the CSR of insurance companies, IRDAI uses these two categories of claims:

• Maturity claims

  The total number of claims made for all the life insurance policies /life-insurance/ after their maturity are known as maturity claims. Under a maturity claim, a specific amount is paid to the policyholder upon survival of the entire policy term. The maturity claims on term insurance are tax-free under section 10(10)D of the Income Tax Act.

• Death claims

  The death benefit is the sum assured amount that is payable to the nominee in either a lump sum or as regular income, in case of the policyholder's death during the policy term. The amount of death benefit is also tax-exempt under section 10(10)D of the Income Tax Act of 1961.

IRDAI Annual Report 2021-22: CSR of Term Insurance Companies

We've listed the claim settlement ratio data in the IRDAI Annual Report for the 2021-22 financial year. CSR is the percentage of claims an insurer settles annually compared to the total number of claims received from nominees. Please note that all CSR-related details in this article are IRDAI-verified.

Benefits of Claim Settlement Ratio

The Claim Settlement Ratio plays a key role when selecting an insurance provider to buy a term life insurance plan /term-insurance/. Based on the general rule of CSR, the higher the ratio, the more credible or reliable the insurer will be. Remember that the claim settlement ratio is always measured as a percentage. The standardization was done by the IRDAI (Insurance Regulatory Development Authority of India). Here are some benefits associated with the Claim Settlement Ratio.

• It gives you peace of mind that your family members can receive financial protection in your absence. A high claim settlement ratio ensures that your nominee is likely to have a hassle-free claim process.
• A claim settlement ratio indicates the reliability of the insurance company. It is a metric of claims an insurance provider settles in a year out of the total claims received. It helps you check how credible an insurance provider is. A claim settlement ratio above 95% is generally considered good.

Factors that Influence Claim Settlement Ratio

When it comes to the claim settlement ratio, certain factors impact an insurer's overall CSR. For example, if the claim process slows down, it affects the insurer's CSR.

1. Non-disclosure

   When you don't disclose information regarding your pre-existing health conditions to the insurer, you risk your policy's cancellation or claim rejection. If the insurer discovers your pre-existing health conditions later, you may lose all your premiums and financial support during critical times. In this case, the company may reject your claim, which also impacts its overall CSR.

2. Fraud

   If policyholders submit incorrect information to defraud the insurance company, and the insurer suspects the authenticity of the claim, the company will reject the claim, impacting its overall CSR.

3. Ignorance of policyholder

   A primary cause for claim rejections is when policyholders fail to follow the company's terms and conditions or make incorrect disclosures of essential details. It is advisable to thoroughly review the policy's contents.

4. Nomination update error

   Sometimes, policyholders forget to fill the nomination section in the insurance proposal form. This can cause delays in the claim process due to the need to identify the legal heir. For a claim to be processed, the nominee must be present during settlement.

Conclusion

Claim Settlement Ratio (CSR) is an essential metric when it comes to selecting the best term insurance provider. /term-insurance/companies/ It gives you peace of mind that your family members can receive financial protection through a hassle-free claim process.