Buying the most popular insurance policy is not the best way forward. It is extremely important to do your research before choosing any policy if you want it to help you at the time you place a claim. There are a few indicators that you should analyse to ensure that the policy is good enough to put your hard-earned money into. One such parameter is the Claim-Settlement Ratio (CSR).
What is CSR?
This ratio is calculated as follows:
Number of claims settled / number of claims received.
E.g. An insurance company receives 10 claims. Out of these, 7 are settled. Therefore, the CSR is 70%. Simple!
The rest of the claims are, of course, rejected due to a number of reasons. So, the insurance company that settles higher claims will be preferred for obvious reasons. Generally, CSR is expressed as a percentage and could range anywhere between 10% and 99% (till now none of the insurance companies have paid 100% of the claims. Skip to “Why CSR is not perfect” for more). The corollary ratio is the rejection ratio, which will give the percentage of claims rejected. This can be anywhere between 3% to 37%, depending on the insurance firm.
Where do I find this data?
Every year the Insurance Regulatory and Development Authority (IRDA) of India releases an annual report on the insurance industry. This report has several details on the performance of all Insurance companies in India, the industry average, claims data and many other important statistics. Here, you can find the CSR data.
If you look at the latest data from IRDA pertaining to 2015, the average CSR has been at 93% for the Insurance industry. Guess who topped the list? Life Insurance Corporation (LIC), of course! The CSR for this firm was at 98.19% for the Financial Year 2015. The average CSR for the private sector was about 89.4%. However, note that there were many private insurers including Max Life Insurance, who had a CSR of over 90%. Here is the list of the top 5 private Insurance companies based on their CSR.
|Max Life Insurance||96%|
|Birla Sun Insurance||95%|
|Tata AIA Life Insurance||94.5%|
|ICICI Prudential Life Insurance||93.8%|
*Source: IRDA report
Also, the average rejection ratio for private insurers has been quite constant at 7.5% for the last 10 years. This augurs well for the industry.
However, note that some of the new Insurance firms might have a high rejection ratio of over 20%. This doesn’t mean they are bad. Generally, newer Insurance firms get a number of fraudulent claims, which they have to reject. They also get a number of early claims which might be suspicious. Early claims are claims made within 2 years of the policy being issued. There are 24 insurers in total and most of them had a CSR between 70% and 90% last year. This is precisely why you shouldn’t use CSR as the only measure to zero in on your policy.
Why CSR is not perfect?
There are a number of reasons why you shouldn’t use CSR as a single parameter for choosing an Insurance policy:
- There are a number of reasons why claims might get rejected including the fact that there might be many fraudulent claims. Any time, any season, there are going to be frauds making claims and insurance firms will reject them. This is why CSR for insurers might never be 100%. Also, this is the reason why newer insurance firms might reject more claims (fraudsters think it is easy to trick new firms!).
- Another popular reason for rejection is the lack of awareness on the part of the customers. Customers, like you, file claims without knowing whether the policy covers it. Some also have the habit of filing claims very late, leading to rejection.
What’s a good ratio?
A CSR of over 80% is good. But read reviews on claim settlements online and also ask your family and friends about their experience with the Insurance company, if any. Ideally, word of mouth is the best way to find out about an insurer. The premium should also be taken into account but only after you zero in on the insurer and not the other way around.
Additional Reading: Top 5 Online Term Plans In India
So, keep these points in mind the next time you want to go for that insurance policy. And don’t forget to compare!