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Business News/ Insurance / Why is looking at a life insurance company’s claims settlement ratio important? MintGenie explains
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Why is looking at a life insurance company’s claims settlement ratio important? MintGenie explains

Carefully considering the claims settlement ratio of a life insurance company is a pivotal step in the process of selecting a life insurance plan. It offers a glimpse into the insurer’s commitment to policyholders.

Know about the claims settlement ratio of a life insurance company before deciding to buy its policy.Premium
Know about the claims settlement ratio of a life insurance company before deciding to buy its policy.

Although life insurance offers important financial security, the expeditious and efficient resolution of claims holds significant importance when selecting a policy. Ensuring confidence that your family will promptly and seamlessly receive the assured payout in challenging circumstances is vital. When searching for a life insurance plan, the pivotal question revolves around the speed and efficiency with which your loved ones receive the payout in the event of a claim.

This becomes apparent when examining the claim settlement ratios of different life insurance companies, with some showcasing exceptionally high ratios. This emphasizes both their commitment and capability to resolve claims raised by policyholders or their families.

For those unfamiliar, the claim settlement ratio of a life insurance company, presented as a percentage, represents the proportion of claims settled by the insurance company about the total number of claims received. A higher ratio typically reflects a more commendable track record in efficiently managing claims.

This formula essentially denotes the percentage of claims that an insurance company effectively addresses within a specified period, usually spanning a year. Analysing the formula in two distinct components can assist the policyholder in understanding the meaning, implications, and significance of this ratio when purchasing a life insurance policy.

Aggregate claims settled annually: This pertains to the total count of claims that the insurance company has disbursed or officially endorsed for payment within the designated year.

Overall claims received in a year: This signifies the total count of claims submitted to the insurance company during the same year, irrespective of their settlement status.

Understanding claims settlement ratio

By IRDAI regulations, life insurers disclose their claim settlement ratios every quarter. After all, individuals buy life insurance to secure financial stability for their dependents in the event of any unforeseen circumstances. The following chart illustrates the claim settlement ratios of select life insurance companies.

Maintaining a consistent claim settlement ratio is crucial, as it offers reassurance to the policyholder that their family will not face financial vulnerability in their absence.

Undoubtedly, the claim settlement ratio holds considerable importance when selecting an insurance company for the following reasons.

Reliability: A substantial ratio suggests that the insurer has a demonstrated history of honouring claims and upholding commitments to policyholders. This fosters trust that your loved ones will not face uncertainty during challenging circumstances.

Openness: Typically, a company’s claim settlement ratio is publicly accessible, showcasing its inclination towards transparency in claim handling. This transparency reflects the insurer’s dedication to equitable practices.

Credibility: Insurers maintaining consistently elevated ratios showcase their financial stability and dependability. This indicates that they possess the necessary resources and processes to handle claims efficiently, providing you with peace of mind.

Customer-centric approach: A substantial ratio frequently signifies an insurance company’s dedication to customer satisfaction. It indicates a priority on prompt and trouble-free claim settlements to assist policyholders and their beneficiaries during critical times.

Evaluating claims settlement ratio

The claims settlement ratio serves as a valuable gauge of an insurer’s proficiency in managing claims. Among several factors, the top three critical elements encompass

Past five years’ ratio: Examining the trend of this ratio over a period, commonly five years, provides valuable insights beyond what can be gleaned from a single year’s data. It illuminates the insurer’s reliability in honouring claims consistently over time. A sustained high claims settlement ratio over the preceding five years signals a dependable and trustworthy company with a robust history of fulfilling its commitments. 

Consistency matters: Monitoring trends can unveil changes in this ratio over time. An ascending trend suggests that the insurer is actively enhancing its claim settlement processes and becoming more efficient. Conversely, a descending trend may indicate potential concerns, prompting the need for further investigation.

A higher ratio (close to 100%) indicates the insurance company’s proficiency in resolving claims, instilling confidence in policyholders. This high level of efficiency assures policyholders that the insurer is adept at promptly handling and approving valid claims. It ensures that a policyholder’s family will have the necessary financial protection without concerns about funds during challenging times, such as the death of loved ones.

Responsibility and openness: Respected insurance providers with robust claims track records recognize that their claims settlement ratio serves as a favourable selling point. Showcasing the claims settlement ratio reflects the company’s commitment to transparency and accountability. It empowers customers to make informed decisions grounded in factual data rather than mere promises.

The claims settlement ratio is usually prominently displayed on a company’s website, often found within sections such as “About Us", “Investor Relations" or areas specifically devoted to company performance metrics.

Furthermore, these ratios are consistently included in extensive financial reports and annual reports published by insurance companies. Additionally, regulatory bodies in the insurance sector, such as the Insurance Regulatory and Development Authority of India (IRDAI), generally release annual reports on the insurance industry, encompassing the claims settlement ratios of individual insurers.

 

 

 

 

 

 

 

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Published: 03 Mar 2024, 12:30 PM IST
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