Claim Settlement Ratio
What is Claim Settlement Ratio?
Claim settlement ratio measures the proportion of claims paid by an insurance company, during a financial year, vis-à-vis the total claims made upon it.
A high claim settlement ratio indicates a higher chance of a claim being settled. The claim settlement ratio varies over time and also from insurer to insurer. This is because the underwriting guidelines governing the claim process are internal to the company, and therefore vary among insurers.
Therefore, while selecting a life insurance plan, the claim ratio should be accorded due consideration to improve claim settlement prospects.
How is the claim settlement ratio calculated?
The formula for Claim Settlement Ratio is given as follows:
Claim Settlement Ratio= (Number of claims settled/ total number of claims received) *100
Claim Settlement Ratio Calculation Example
Let’s consider an example:
Suppose a life insurer receives 100 death claims between 1 April 2019 and March 31, 2020, out of which 90 claims are settled, 8 are rejected and 2 are pending a decision. Then,
The claim settlement ratio of the insurance company is 90/100=90%
The claim rejection ratio (or claim repudiation ratio) is 8/100=8%
The claim pending ratio is 2/100= 2% IRDAI, the insurance regulator in India publishes these ratios annually
Claim Settlement Ratios
Claim Settlement Ratio of Life Insurance Companies
|Tata AIA Life Insurance||96.01%||98%||99.07%|
|HDFC Life Insurance||97.62%||97.80%||99.04%|
|Max Life Insurance||97.81%||98.26%||98.74%|
|ICICI Prudential Life Insurance||96.68%||97.88%||98.58%|
|Life Insurance Corporation of India (LIC)||98.31%||98.04%||97.79%|
|Reliance Nippon Life Insurance||94.53%||95.17%||97.72%|
|Kotak Life Insurance||91.24%||93.72%||97.40%|
|Bharti AXA Life Insurance||92.37%||96.85%||97.28%|
|Birla Sun Life Insurance||94.69%||96.38%||97.15%|
|SBI Life Insurance||96.69%||96.76%||95.03%|
|Bajaj Allianz Life Insurance||91.67%||92.04%||95.01%|
Source: Tavaga Research
Claim Settlement Ratio of Health Insurance Companies
|Bajaj Allianz Health Insurance||98%|
|HDFC Ergo Health Insurance (Formerly nows as Apollo Munich)||97%|
|Max Bupa Health insurance||96%|
|TATA AIG Health Insurance||96%|
|Aditya Birla Health Insurance||94%|
|Care Health Insurance (Formerly Religare)||93%|
|Future Generali Health insurance||92%|
|HDFC Ergo General Health Insurance||92%|
|Manipal Cigna Health Insurance||91%|
|Star Health Insurance||90%|
|Oriental Health Insurance||89%|
Source: Tavaga Research
Which insurance company has best claim settlement ratio?
Clearly, from the above 2 tables, TATA AIA Life Insurance company has the best claim settlement ratio (as of 2018-19) in the life insurance segment.
Bajaj Allianz Health Insurance has one of the best claim settlement ratios in the health insurance space.
Claim Settlement Ratio of LIC (Life Insurance Corporation of India)
LIC’s claim settlement ratio marginally decreased from 97.79% in 2017-18 to 98.04% in 2018-19.
How should the claim settlement ratios be compared?
When choosing an insurance policy the following additional points about the claim settlement ratio should be kept in mind:
- The claim settlement ratio is calculated taking into account all the company products. For example, when calculating the claim ratio for a life insurance company offering ULIPs, term insurance, etc., all those products will be included in the ratio calculation. The ratio is never provided for a single product.
- In addition to the claim settlement ratio, the number of claims received by the insurer should also be considered. Also, look at the size of the company.
- A claims settlement ratio above 85% is considered to be good.
Steps to avoid rejection of a claim:
A policyholder looking to minimize the likelihood of a claim rejection should keep these things in mind:
- Informing the nominee or legal heirs about the purchased policy: The nominee is an individual who receives the benefits from the insurance policy on the settlement. The insurance company needs to be informed about the occurrence of the covered event to initiate the settlement process.
- No information should be concealed: Insurance companies decide on the premiums based on the information present on the application form submitted before the inception of the policy. Therefore, any information concealed by you that can adversely affect your health can result in a claim being rejected by the insurer.
- Ensuring that the details on the application form are correct: Ideally, your insurance agent must not fill out the application form because they can miss out on the important details and should be done by the prospective policyholders themselves.
- The insurer should be informed about the claim event immediately. Insurance companies generally consider delays in intimation as an indicator of potential fraud. Intimating the companies timely can keep you clear of this accusation.
Claim settlement ratio certainly provides useful insights into the prospects of settling a claim on its occurrence and has been used widely throughout the world but should be accompanied by steps listed above to avoid rejection of a claim to ensure a high likelihood of a settlement. Researching the appropriateness of the various covers on offer must complement this to get the best value out of your insurance policy.