“The heart has its reasons, which reason knows not.” – Blaise Pascal
This quote encapsulates everything we do in our lives. It is the value of these reasons that gives us a broader perspective of life, primarily when we work towards creating a financial backup for our families, through various types of insurance and investment instruments.
If you have plans to buy a term insurance policy, the first step forward is to select a trustworthy insurer. At the same time, the last thing you would expect is a rejection of the claim filed by your family in case something happens to you. Thus, it is crucial to choose an insurer who has a dependable track record of settling insurance claims. One significant parameter that can help you here is the insurer’s claim settlement ratio.
What is the Claim Settlement Ratio (CSR)?
CSR indicates the percentage of claims an insurance company has settled over the intimation received during a financial year. For instance, if the claim paid ratio of an insurer is 96%, it implies the insurer has settled 96 out of every 100 claims received. At the same time, the remaining four claims could be rejected due to different reasons including non-disclosure of medical history, incorrect nominee information, or policy lapse.
The Insurance Regulatory and Development Authority of India (IRDAI) publishes an annual report that details the claim settlement ratio of various registered insurance companies in India. This makes CSR a credible parameter to be considered while buying a term insurance policy.
Importance of Considering Claim Settlement Ratio
When buying a term plan, many people consider only the premium payable, while the possibility of claim rejection is the least of their worries. You can avoid this mistake by checking claim settlement ratio of the chosen insurer along with other valuable parameters. There are many reasons to include CSR analysis in your checklist while buying life insurance.
- It is a Measure of Insurer’s Trustworthiness
Think of the reputation of a life insurance company as a flywheel driven by the force of trust that its customers have. The higher the claims settlement ratio, the better is the trust factor of the customers. As a satisfied customer, you tend to persist with your life insurance policy and adhere to your share of the insurance contract. On the other hand, a high claim settlement ratio is reflective of the insurer’s commitment to providing timely financial assistance to its customers.
- It Gives Assurance About Your Family’s Financial Future
Loss of a loved one in the journey of life comes with its fair share of emotional and financial burden. Mainly when you are the sole breadwinner in your family, you will never want the family members to go through severe financial trouble if something happens to you. Although you cannot predict the longevity of your life, you can stay prepared for the odds by checking the claim settlement ratio of insurers before buying term insurance.
As a rule of thumb, selecting an insurance company with a 95 per cent claim paid ratio or above is the right choice.
- It Reflects the Risk Management Capability of an Insurer
With newer technology coming up in place, the insurance sector has also become more robust than ever. For instance, insurance companies can quickly weed out claim applications that are not genuine using advanced technology. In return, it helps them to concentrate more on settling legitimate claims efficiently.
This way, a higher claim settlement ratio says a lot about how efficiently an insurer has adapted to advancements in technology to settle claims faster.
Crucial Points to Remember
- As said above, the IRDAI publishes an annual report containing the details of the claim paid ratio of all the Indian insurers. Although checking an insurer’s claim settlement ratio for a particular year can help you buy a term plan, it is better to look at the average of CSRs over the last few years. Take the case of Max Life Insurance, a leading name in the Indian insurance sector. With their commitment to offering seamless claim settlement, their CSR has only grown over the last five years. For the FY 2019-20, Max Life Insurance had a claim settlement ratio of 99.22% *.
*Source – Max Life Public Disclosure, FY 2019-20
- Along with the CSR, you must look for other crucial factors like turnaround time and claims guarantee while comparing insurance claims.
The term plan you choose for your family will benefit them financially when you are not around. Hence the responsibility of selecting the right insurance company lies in your hands. So, be careful when you plan to cover your life under a term plan.