A claim settlement ratio can be described as the percentage of insurance claims that an insurer has settled in a given year out of the number of claims it received.
This is why the ratio acts as a reliable indicator of the insurance company’s credibility. Notably, the higher the claim settlement ratio the more reliable an insurance company is deemed to be in terms of handling claims. This provides a sense of confidence and peace among insurance buyers regarding the success of their claim settlement and ensures that their families will be able to seek the required financial support in the event of an emergency without delay. This is why individuals are encouraged to seek insurance companies with high claim settlement ratios to ensure their credibility. One can easily check an insurance company’s claim settlement ratio on the official website of the insurer or check the website of the Insurance Regulatory and Development Authority of India.
What makes the claim settlement ratio important?
The fact that the claim settlement ratio of an insurance company can help assure the future financial security of their dependents makes it a crucial factor when looking for insurance. Since the main objective of getting insurance is to ensure the financial safety of one’s dependents, having the assurance of the same would help them plan better and offer mental peace in knowing the chances of the insurer honoring their claims.
To elaborate, a high claim settlement ratio would assure that the insurance company would honor their claim request, given their claim meets the terms and conditions laid down by the insurer. Additionally, a high claim settlement ratio indicates that the company is most likely to follow a simple and hassle-free claim process that will ensure quick settlement and prompt disbursal of the sum assured. This way individuals can ensure that their family will not face hassles when raising a claim and will avail the needed assistance without any long delay.
A high claim ratio also highlights the insurer’s reliability. To elaborate, the ratio indicates the insurance company’s competency and ability to pay the promised sum to the family in case the claim meets the terms and conditions of the policy. However, to be assured of their ability, it is recommended to check how consistent the company has been in settling claims. Insurers who have had a high claim settlement ratio for consecutive years are deemed more reliable and transparent than most insurance companies.
How do you calculate a claim settlement ratio?
Typically, a claim settlement ratio is computed using this formula –
Claim Settlement Ratio
= (Total number of claims the company has settled in a given year/Total number of claims the insurance company has received in a year) x 100
For instance, suppose an insurance company has settled 9500 insurance claims out of a total of 10000 claims it received in 2020-2021.
Using this formula it was found
= (Total number of claims the company has settled in a given year/Total number of claims the insurance company has received in a year) x 100
= (9,500/10,000*100)
= 95%
A high rate like this would indicate the strong claim settlement record of the insurer. Individuals can simply check the claim settlement ratio online. Notably, an insurance company publishes a report on claim settlement ratio every year. By tracking the ratio of consecutive years individuals can gauge the flow of claim settlement and their records.
It should also be noted that a high ratio indicates that the insurance company has a record of paying a large percentage of the claim submitted on time and without unnecessary delay. On the other hand, a low ratio indicates that the company has denied a majority of claims or has delayed the process. This way the ratio of claims helps measure the financial performance of insurer and their ability to pay claim money to the policy nominee in a given year. This aspect helps individuals make an informed decision regarding their choice of insurance provider.
Why must the claim settlement ratio be consistent?
When checking an insurance company’s claim settlement ratio it is vital to ensure that they have been consistent when it comes to settling insurance claims. Typically, it is recommended to look at the claim settlement ratio of the last 5-10 years to understand the insurer’s track and approach to settling insurance claims. Individuals may look at IRDAI’s annual report to check the current claim settlement ratio and check previous reports to check the old ratios. Similarly, by repeating the process with different insurance providers of the best ULIP plans individuals will be able to compare their performance with regards to claim settlement and pick a more reliable option. While at it, individuals should check the insurance’s claim process, requirements, process time, and limitations to understand how smooth is their approach to settlement.
When a claim is likely to get declined?
Insurance companies tend to reject the claims they receive if the same does not meet the policy conditions or their judgment, or in the event of a discrepancy in the insured’s data.
To elaborate, insurance companies can reject a policy because of non-disclosure on the part of the policy buyer or due to misstatement of vital information.
Typically, withholding information related to age, health conditions, and pre-existing disorders tends to affect policy issuance. If these details are not disclosed in the proposal form and the same does not match the claim request there could be a discrepancy due to non-disclosure. Similarly, if individuals withhold details or provide incorrect information in the proposal form and the insurance company discovers this during the claim verification process they would reject the plea on the grounds of misstatement.
Take for instance, when the policy buyer, Mr. Karan with a kidney condition does not disclose his health condition in the policy proposal form, the insurance company can brand it as non-disclosure. Similarly, overstating his income or misinforming about his age would be considered a misstatement.
This is why individuals must declare their information and be transparent about the same. In addition, they should check with the insurance company the grounds on which their claim is likely to get rejected to remain informed and plan their insurance policy accordingly. Additionally, informing their nominees about the same is useful in minimizing the risk of rejection.
