Claim Settlement Ratio (CSR) is an important parameter in the selection of an insurance policy. If you are going for a pure insurance plan, a term insurance plan is an ideal option. The term insurance plan is pocket-friendly and the financial benefits are very high. However, you should understand the fact that the insurance company should pay the death benefit as per the contract executed by the policyholder. The claim should be made by the beneficiary and it should be honored by the insurance companyRead more
The term insurance claim settlement ratio, or CSR, is the ratio of the total number of approved claims and the total sum of claims received by the insurance company. This ratio is measured every financial year. The information is available on the official website of the insurance company. As a matter of fact, the claim settlement ratio is measured for all insurance products and is not confined to the term policy alone.
An insurance company received 1000 death claims between April 1, 2020, and March 31, 2021. And, the insurance company paid 950 claims successfully and 40 claims were rejected. The company is yet to decide the fate of 10 claims.
Therefore, the claim settlement ratio will be 950/1000= 95%
The claim rejection ratio = 40/1000 = 4%
The claim pending ratio = 10/1000 = 1%
In this above-discussed case, the remaining claims of 5 percent are excluded or not accepted by the insurance company. There are number of reasons that an insurance provider may reject or disallow a claim such as fraud, impersonation, misrepresentation, impersonation, etc. The CSR of an insurance company sometimes gives a clear knowledge of the settled claims in a financial year. However, determining the company’s stability entirely based on CSR is not a smart idea. Other parameters are also responsible such as policy benefits, service quality, choice of policies, etc. should always be considered while selecting an insurance company.
A CSR for various life insurance companies is calculated using the following formula:
CSR = (Total no. of claims settled in a fiscal year/Total no. of claims in a year) X 100
The recent data for Claim Settlement Ratio is available in IRDAI Annual Report for 2020-21 financial year. This is calculated on the basis of individual claims settled over total claims (individual) for the financial year. Below is the table illustrating the CSR values of different life insurance companies:
|Insurance Company||Claim Settlement Ratio (CSR)||Death Claims Paid|
|Aditya Birla Sun Life||98.04%||6347|
|Canara HSBC OBC||97.10%||1844|
|Tata AIA Life||98.02%||4556|
Information Sourced from IRDAI Annual Report 2020-21
Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.
As per the annual report of the IRDAI for the year 2020-21, you will find the overall claim settlement ratio of the insurance industry averaged at 97.46% for FY 2020-21. Max Life, Aegon Life’s Bharti AXA, Pramerica and LIC’s success rate dominates the overall claim settlement ratio in the insurance industry. Private life insurance companies are performing well and great improvement was observed in their performance in the past half a decade.
If the claim settlement ratio of a company is higher than 95%, it is considered good. The average value of the claim paid will be high if the sales of term insurance are also high.
The claim settlement ratio is always mentioned as a percentage. The standardization was done by the IRDAI (Insurance Regulatory Development Authority of India). The information is published on an annual basis.
If you are buying a term insurance policy, you should have access to the claim settlement ratio of term policies. If you are sure about the claim processing capability, you will settle for the best term insurance plan.
The whole objective of purchasing a life insurance plan is to ensure financial protection against unfortunate events. However, the purpose will be conquered if the insurance company does not honor your claim request. In another case, if the insurer honors the claim, your family is more likely to have a hassle-free, transparent and simple claim process. Thus, you can rest assured that your family does not have to struggle to receive the sum assured.
The CSR indicates the ability of an insurer to pay the sum assured amount to you or your nominee. If your respective insurer is maintaining a high CSR consistently over a certain amount of time, they are considered to settle claims quickly and thus are called a reliable company.
Even though CSR is an important parameter, it should not the only parameter in the selection of the insurance policy. There are various reasons which undermine the importance of CSR. The reasons are mentioned below:
CSR does not pertain to term insurance alone - CSR does not apply to term insurance plans alone. It applies to all kinds of life insurance products. Most of the customers who buy non-term insurance plans are interested in investment rather than insurance as a protection for life.
Scam committed by customers – Some customers submit fraudulent information intentionally. If the life insurance company is unable to catch the fraud during the policy proposal or confirmation stage, the company may notice the discrepancy later. If you avoid stooping to such methods, there will be a positive impact on the insurance premium. The premium will be affordable and you can make the most of your investment.
Early claims – If a claim is filed in less than 2 years after the commencement of the policy, it is termed as an early claim. New insurance companies process more early claims than non-early claims, which negatively impacts their claim settlement ratio.
Vigorous sales – When an insurance company vigorously promotes sales, it is prone to process many proposals some of which, eventually, turn out to be fraud cases. If the insurance company rejects such kinds of claims, the CSR is negatively affected. Small and new companies increase promotions to add new policies to enhance the profitability of the insurance company at the risk of poor CSR.
Hence, the above reasons indicate that CSR should not be the sole parameter when subscribing to an insurance policy from a life insurance company.
The term insurance plan is a ‘value for money’ product. It covers the risk very efficiently. You will pay a minimal premium and it is possible to get the highest monetary benefit.
The ‘sum assured’ is paid on the death of the insured. The insurer is not obliged to pay anything if the policyholder survives after the policy term. The premium collected from the insured is based on the age, policy term and the ‘sum assured’. It is also based on the CSR of the insurance company. If the CSR is low, the insurance company is compelled to increase the premium.
The following factors will also impact the insurer’s CSR.
Non-disclosure – If the policyholder fails to inform the company about his/her true condition. Any health issues should not be hidden. When the insurance companies come to know the truth about your health that can adversely affect your insurability, the insurance company may reject your claim. Thus, non-disclosures negatively impact CSR.
Fraud – The policyholder may conceal information with the intention to cheat the insurance company. If the insurance company is suspicious about the authenticity of the proposer’s claim, the company may decline the claim. It will have a negative impact on CSR.
Ignorance of policyholder – If the policyholder fails to follow the terms and conditions mentioned by the insurance company. It is an extremely unpleasant experience when the policyholder isn’t clear about the terms and conditions of the policy. You should spend time and effort to go through the contents of the policy. If you are not sure of any clause, you can approach the insurance company directly or the agent.
Nomination update/error – If the policyholder fails to fill the nomination column in the insurance proposal form. It will have a negative impact on the insurance company. The insurance company may fail to process the claim if there is a delay in identifying the legal heir. The nominee should be present while settling the claim. If there is any dispute between two parties with reference to the nominee, the issue should be resolved. No claim settlement will take place until the dispute is resolved.
To choose the best term insurance plan, you should know about the premium (and if it fits your budget) and sum assured (the financial benefit paid to the nominee).
You should be aware of your income and the financial requirement of the dependents. Specific financial goals such as higher education, and children’s marriage, waiver of loans (of the policyholder), and retirement should be fulfilled with the insurance policy.
It is highly advisable to choose an insurance plan at a young age. When you purchase a policy during your early ages, the premium is low. The same premium will continue throughout the policy term. You can choose a policy term to fulfill the long-term financial needs of your dependents.
Inflation will reduce the worth of your savings. Hence, you should choose a ‘sum assured’ that fulfills your needs in the best possible way.
By choosing various kinds of riders, you will be eligible for a significantly increased financial benefit. If you pay a small additional premium to cover the accidental death, the insurance company will pay double the sum assured. There are other riders such as critical illness and mortgage with which you will get a lump sum money as per your dependents’ needs.
You should be aware of the claim settlement ratio while buying a term policy. With the advent of the online facility, you can subscribe to a term insurance plan very easily. By disclosing information about your health, earnings, and other details honestly, you will get a high sum assured and it is possible to process the claim very easily. The rejection of insurance policy based on misrepresentation or non-disclosure facts and fraud has a negative impact on an insurer’s CSR. In addition to CSR, you should consider other prominent features as well in choosing the best term policy as per your objective.
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