What is a Claim Settlement Ratio?
The claim settlement ratio (CSR) refers to the percentage of claims settled by the insurance provider. A higher claim settlement ratio is preferred since it indicates the insurer's credibility and reliability. It is calculated by dividing the total number of claims settled in the year by the total number of claims made in that year, and multiplied by 100
Why is it necessary while purchasing life insurance?
The primary goal of a life insurance policy is to pay death benefits to the family of the deceased life assured. If the insurer has a poor credibility rate, it demonstrates disloyalty to the contract and contradicts the entire purpose of the contract policy. The problem worsens if the family's claim is denied and the deceased life assured was their sole earner. In this situation, the policy was their only option for overcoming financial difficulties. Therefore, it is prudent to evaluate the company's claim settlement ratio while purchasing insurance from them.
Let’s take a look at a few more reasons to evaluate the claim settlement ratio
It contributes to your family's financial security
The entire purpose of purchasing life insurance is to provide financial security in the event of an unexpected incident. However, if the insurance provider does not honour your claim, the objective is undermined. If, on the other hand, the insurer respects the majority of claims, your family is more likely to experience a straightforward, transparent, and trouble-free claim procedure. Thus, you can be certain that your loved ones will not have a difficult time obtaining the sum assured. This is why you must choose an insurance provider with the best claim settlement ratio.
Indicates the dependability of the insurer
The claim settlement ratio reflects the insurer’s capacity to pay the amount guaranteed to you or your nominee. If your supplier has continuously maintained a high CSR over a long period of time, they are unlikely to renege on their compensation obligation.
How is a claim settlement ratio calculated?
Claim settlement ratio is calculated using the following formula :
Claim Settlement Ratio (CSR) = (Total number of claims resolved in a year/Total number of claims in a year) X 100
For example, Company A resolved 9,500 claims out of a total of 10,000 claims for 2019-2020. Thus, its CSR will be 95% (9,500/10,000*100).
The consistency of the insurance provider's claim settlement ratio is critical since the range provides a better sense of the company's claims rejection record. This is why, it is prudent to examine the company's IRDA claim settlement ratio over the last five years. Furthermore, a smaller range suggests that the firm is dependable. A range of 91-95 percent, for example, is preferable to 86-93 percent.