High Claim Settlement Ratio = Safe Insurer? The Truth Most Agents Won’t Tell You

In insurance marketing, the claim settlement ratio is a heavily used statistic, especially in India, where millions of policyholders depend on their insurance plans for a financially secure future. Agents market insurance plans based on claim settlement ratios, stating that higher ratios mean policyholders are ‘guaranteed’ settlement on their claims, saying things like, ‘We have 98% claim settlement ratios, which means your claims are guaranteed.’

Although a high claim settlement ratio may mean the insurance company is processing a lot of claims, is it the most important factor to look for in an insurance company? In this blog, we focus on the insurance claim ratio riddle agents don’t tell you, discuss the insurance myths in the Indian insurance sector, and educate you on selecting an insurer that will provide true peace of mind to you and your family.

We understand that, as policyholders, insurance companies hold important information that allows them to become wealthy, yet there does not seem to be an answer to the problems they create within the policy market. Most policyholders do not arm themselves with the necessary materials, nor do they become proficient with the tools needed to make a well-informed decision. Most people rely on a few municipalities to provide information for the purpose of decision-making. 

In the case of insurance companies, most people are unaware that the Insurance Regulatory and Development Authority of India (IRDAI) provides information on the claim settlement ratio for each municipality on an annual basis, which, as a result, has led them to rely on such information as a method of comparison. However, from the information presented, one can see that the claim settlement ratio does not explain the safety of an insurance company. We will explain the safety of an insurance policy as well as how not to be misled, which will provide you with a better understanding of the importance of using an insurance policy.

 

 

Claim Settlement Ratio

Claim Settlement Ratio refers to the number of claims an insurance company has settled versus the number of claims that were presented to the insurance company over a given period of time. It is important to understand the ramifications of relying solely on data presented to the public. In the case of a policy or insurance company, there is a business that is providing a monetary value to the social contract of being a policyholder. 

Formula:

Most people fail to consider the claims that were presented to the insurance company as well as the number of claims that the insurance company settled in a given period. As an example, insurance companies can be flooded with as many as 10,000 claims in a single coverage period, and if the claims are settled in the insurer’s favour, they will have a CSR of 95%.

The IRDAI has set the calculation of this metric for the sake of transparency, breaking it down by segments of life, health, and general insurance. In life insurance, it considers death claims, while in health insurance, it considers claims for hospitalisation and other medical services. Policyholders see the CSR (Claims Settlement Ratio) above 95% and tend to view it positively, correlating it with the company's operational efficiency and reliability.

However, there’s more to it. CSR does not consider the number of claims that are not settled, or in other words, rejected, pending, or repudiated claims. From the total number of claims settled, the company policy is to withhold (subtract) rejected claims, so a company can get away with having a high CSR because they reject a high number of claims as long as they settle the majority of the rest quickly. 

Also, this ratio is a reflection of the number of claims settled, not the actual amount. This means that a company can settle a lot of small claims and be fast in doing so, while other large claims are taking a long time to be settled, creating a distorted perception of safety.

In India, many insurance companies, such as LIC, HDFC Life, and Max Life, advertise insurance Claim Settlement Ratios (CSR) around 98-99%. While that may sound good, there is more to that story. Some policies settle claims more than others, like term life insurance versus endowment policies. Also, if the policyholders are predominantly younger and healthier, the number of claims may be reduced. 

It is important to note that the CSR is artificially inflated in this case. This is why the claim settlement ratio is one of the most relied upon insurance company numbers in India, and one of the biggest insurance company myths.

The Claim Settlement Ratio (CSR) Misconceptions in India

Let's now discuss the Claim Settlement Ratio (CSR) misconceptions in India that, unlike other insurance agents, is unlikely to be ignored. Having a large number of claims to be settled may not be a good thing for a company. For one, as a result, a large number of claims may be from the company, as the last financial year is being used as a partition. Because of this, the changes being made are not factored into the claims that are currently being managed. 

What does this mean? An insurer can record an extremely high CSR by being excessively selective when it comes to underwriting. For example, they may only approve policies for low-risk individuals and therefore reject any applicants who have pre-existing conditions or other risk factors. Fewer claims and more settlements keep the CSR high, but that does not mean the insurer is “safe” for the average policyholder. 

The average policyholder may need to have some coverage due to their health issues, but policyholders with more complicated issues may face higher rejections at claim time, regardless of how good the ratio looks.

There is yet another factor to consider: the potential for manipulation. Some companies may, for the sake of CSR, settle claims quickly, but as a result, they may underpay or settle without conducting a thorough investigation. An example of this can be seen within the claim settlements for motor insurance. An insurer may approve a claim for minor accidents and minor repairs, but when it comes to a more serious accident claim, they may delay or outright refuse to settle the claim because of technicalities. This results in a false sense of security.

Let’s examine specific examples in India. With the onset of the COVID-19 pandemic, numerous insurers noticed a drop in their claims settlement ratios due to a spike in pandemic-related health claims. Insurers with historically low ratios had to explain that their “safety” was based on a non-pandemic scenario.

Based on the reports provided to the Insurance Regulatory and Development Authority of India (IRDAI), some private insurers were able to sustain elevated claims settlement ratios (CSRs) because they provided corporate group policies, where claims tend to be more predictable and far less frequent than in the case of individual retail policies.

Concerningly, the CSR metric does not reflect the speed of claim settlements. It’s possible for a company to have a CSR of about 99%, but claim processing could take several months, which would leave policyholders unpaid during that interim period. This implies that policyholders would experience great economic inconveniences. 

While IRDAI does measure and report the average time taken to process claims, it remains an underreported metric in comparison to CSR. Policyholders need to examine customer reviews on Policybazaar and MouthShut to identify and note issues related to time delays in the processing of claims.

Ultimately, it would be extremely foolish to focus on the ratio of claims settlements in isolation. It would be akin to purchasing a car and choosing to focus on the fuel economy metrics to the exclusion of safety, comfort, construction, and durability of the car. The stereotype holds true that a good insurance company has good claims ratios and balances that with good practices, not just good numbers.

 

 

Indian Insurance Myths: Beyond the Claim Settlement Ratio

One of the main myths of the insurance sector in India is that a high CSR (claim settlement ratio) means there will be an easy insurance process. With a lack of insurance sector education, quick, commission-driven sales create a market of this claim settlement ratio myth.

Myth 1: Better CSR Means Better Customer Experience? No, Not Always. Some insurance companies could be better at settling claims but worse at customer service. SBI Life is an example of a high CSR insurance company and has been documented by IRDAI for high levels of mis-selling and ignoring policy details.

Myth 2: Public Sector Insurers Are Safer. Private Insurers like ICICI Prudential offer the same, if not better, customer service and insurance product innovation than the government-backed LICs.

Myth 3: CSR Is The Same For All Insurers Products. Since a life insurer has a high CSR for claims made upon the death of the insured, they could be underperforming for claims made in health or travel insurance. Each insurance sector is separated on a case-by-case basis. Other common myths in Indian insurance are that cheaper premiums provide better value, which often results in inadequate coverage. 

Another is assuming that no-claim bonuses in health insurance are free money without knowing about renewal hikes. These myths show the need for educational initiatives. The NCAER 2023 Survey indicates that 60% of urban Indians do not understand insurance terms, leaving plenty of space to thrive.

How To Choose An Insurance Company: What To Look For To Make Sure An Insurance Company Is Safe

If the Claim Settlement Ratio can’t help you decide which insurer is safe, then what can help you? The following are guidelines that can assist policyholders in making the right choice.

• An insurer's solvency ratio is the most important ratio when deciding on a company. If the insurer's solvency ratio is below 150, you should not go with them because the company is unable to meet its long-term obligations. If an insurer's solvency ratio is above 150, then they are able to meet their long-term obligations with relative ease. If you are comparing insurers and one has a solvency ratio above 200, you will find that the company has far better financial stability than the competing company.
• A ratio that is just as important when determining the risk you are taking as the Claim Settlement Ratio is the Claim Rejection Ratio. The Claim Rejection Ratio is a ratio that helps you figure out how many claims have been rejected. If an insurance company has a Claim Rejection Ratio greater than 5, you should not consider that company.
• When it comes to insurance policies that fit your needs, the company you choose should have policies that insure you and not just the bare minimum. For most families, a term plan is necessary, along with some riders. For most seniors, health covers are offered, but without a co-pay.
• If an insurance company has an 'AAA' rating from an insurance rating agency, you can be sure that the insurance company has a high level of stability relative to other insurance companies. CRISIL and ICRA are insurance company rating agencies.
• The insurance company should also have a wide range of hospitals that are covered under the policy. For health insurance, this is important as it will save you a lot of money out of your own pocket. For car insurance, the insurance company should also provide quick assistance to you on the side of the road.
• To be well-informed before making the decision, opt for the company that provides services with clear and easy policies. If you can, try to check for policies available that include easy and accessible waiting periods. India's Insurance Development and Regulation Authority (IRDA) and Bima Sugam are two tools available to Indian consumers that provide the ability to check and compare different IRDA-approved insurance policies. 

Take, for example, Bajaj Allianz insurance – it has a 96% Claim Settlement Ratio. It is a well-known insurance provider, has high solvency, and as a result, it has a lower-than-average number of complaints filed. Consequently, Bajaj Allianz is a better option than an unknown insurance company with a Claim Settlement Ratio of 99%, which may result in poor solvency.

The persistence ratio can give you information to help you make a better decision. It can provide information regarding customer satisfaction, which can provide customers with a greater understanding of available options. If you look for insurance options that help provide customers with high solvency ratios, you will reduce the available options of insurance policies. Insurance options available can vary for each person, and the information provided is a key aspect that should be taken into consideration.

 

 

Conclusion

Finally, it should be noted that an insurance company with a high ratio of paid insurance claims is an insurance company that is not financially sufficient. If you now understand the reasons behind this myth and combine all of the previous comments and anti-insurance company myth information that has been provided to you, you can improve insurance fraud protection. 

As a result of the previous steps, you will equip yourself with an insurance company that will offer you low insurance fraud protection. Insurance will provide you with the best available services. 

On the other hand, you may overlook the high-quality insurance fraud protection that you will receive. You may have an insurance policy with a company that is known to provide poor insurance fraud protection. Before purchasing any insurance policy, it is advised that you first check the latest report on the insurance companies published by IRDAI.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.

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