India is the largest country in the world in terms of population but they have very little knowledge about insurance. Many Indians do not have any kind of insurance, be it life insurance or health insurance, as they think insurance is a kind of unwanted expense. However, as the country develops and becomes more financially literate, the number of people opting for insurance is expected to increase and one of the most important terms one should know is the claim settlement ratio. 

Imagine you are struck with a tragedy like a hospitalisation, a critical illness or an untimely death of the breadwinner and the family files a claim, but the insurer says no. That would be even more devastating than the actual tragedy. 

This is not some hypothetical scary story but it keeps happening and we keep reading about it in newspapers and various social media forums. And in most cases, the warning signs were always there buried in a simple statistic called the Claim Settlement Ratio (CSR). If you have an insurance policy and have not checked this number before buying your policy, you may have already made the most expensive mistake of your financial life.

So let us understand what this Claim Settlement Ratio is all about, how it is calculated, what a good number looks like and how to use it wisely when choosing your insurer in this blog.

What is claim settlement ratio (CSR)?

The claim settlement ratio is an important metric in the insurance sector and as a policyholder you should always be aware of this ratio of your insurer. 

The CSR is the percentage of insurance claims that was successfully settled by the insurance company against the total number of claims it had received during a financial year. 

The formula is as follows,

CSR = (Number of Claims Settled ÷ Total Number of Claims Received) × 100

In simple terms, if an insurer had received 10,000 claims and it had settled 9,200 of them, then

CSR = (9,200/10,000) x 100 = 92%

In other words, it tells the consumers how well the insurance company is ready to honour their promise to the policyholders. 

This metric is used across different types of insurances like life insurance, health insurance and term insurance. In life insurance, it typically measures how many death claims were settled. Whereas, in health insurance, it reflects hospitalisation and treatment claims processed during the year. 

Regardless of the insurance product, the CSR answers a simple but very pertinent question and that is did the insurance company come to the rescue of the policyholder or the family members of the policyholder. 

The Insurance Regulatory and Development Authority of India (IRDAI), which is the watchdog of the insurance sector, mandates that all insurers report their claim settlement data annually. The public disclosure of this data is extremely useful for consumers during their decision making process. 

What is a good claim settlement ratio?

A claim settlement ratio of more than 90% or more is considered good by industry standards. However, an insurer with 99% CSR but has a reputation for settling claims at reduced amounts is not necessarily better than the insurer with a 95% CSR that pays full amounts quickly. Moreover, you must check these two details also: 

Settlement speed

According to IRDAI, life insurance companies should settle valid claims within 30 days of receiving all documents. If an investigation is required, the outer limit is 120 days (30-day investigation + 30-day post-investigation settlement). For health insurers, cashless claims at network hospitals should typically be pre-authorised within a few hours. Reimbursement claims should be settled within 15–30 days of document submission.

Claim amount paid ratio 

This is the ratio of the total amount paid out versus the total amount claimed. An insurer could have a 98% CSR by number but consistently underpay settling claims for less than what was legitimately due. Always look at both the count-based and the value-based metrics.

Factors influencing CSR

If you are planning to buy insurance then it is better to understand what are the reasons for a claim to be approved or rejected. Here are a few things to keep in mind before you become a policyholder

Underwriting quality

Insurance companies which have a strict underwriting process for proper health declarations, pre-policy medical tests, exclusion of high-risk cases upfront have fewer disputes at the claim stage and a better chance of settling a claim from its policyholders. 

Product design

Insurance policies with many clauses like sub-limits, co-payment, limits on room rent, long waiting periods may often lead to partial claim settlements or rejections and this can affect the overall CSR numbers.

Claims process efficiency

Insurers who have leveraged technology and streamlined the claim settlement process tend to settle the claims faster and consistently. Third-Party Administrators (TPAs) managing insurance claims also play a significant role as a well-run TPA can expedite the claim settlement process and improve settlement timelines.

Financial strength  

A company that is in the business of insurance must have adequate reserves to pay claims when they arise. IRDAI mandates a minimum solvency ratio of 150% for all insurance companies and those above this threshold are in a better position to pay large claim amounts or simultaneous claims without much delay.

Fraud and mis-declaration

Fraudulent claims by policyholders, like not reporting or misreporting pre-existing conditions or giving wrong information during the time of evaluation are valid and legitimate reasons for rejection.

Other important metrics in insurance 

Claim settlement ratio is not the only metric a potential policyholder must look at and there are other important metrics you must check if you buy a policy from an insurer. Here are three other metrics to evaluate alongside it:

Incurred claims ratio 

This is one of the important metrics you must check along with CSR. This will show how much claims are paid out as against the premiums collected. Suppose the ICR is low, say less than 50%, then it may indicate that the insurer is rejecting too many claims or not paying very less compared to the claim amount. 

If the ICR is above 100%, then it means that the insurer is paying out more claim amount than the premiums collected. This may be beneficial for the policyholder in the short-term but the insurer will get into trouble sooner or later and it may lead to higher premiums or rejection of claims in the future. 

An ICR in the range of 50% to 85% is considered an ideal and stable ratio and it signifies that the insurer is good at balancing premium income and claim settlements, pointing to strong financial health.

Solvency ratio

The ratio gives you an idea about the financial health of the insurer and does it have the ability to pay claims even during stressed conditions. Make sure you select an insurer which has a solvency ratio of above 150% which is the minimum regulatory requirement.

Customer grievance ratio

The insurance regulator, IRDAI, also publishes data on the number of complaints per 10,000 policies. This is called the customer grievance ratio and this ratio reflects customer experience quality, i.e., not just claim outcomes but service quality, customer care responsiveness, policy servicing and dispute resolution.

Checklist of things to follow for no rejection of claims 

• When you select an insurer to pay for an insurance policy, always check if the insurer has a high claim settlement ratio of around 90% or more, so that it reduces the risk of rejection. But you hold half the responsibility for a smooth claim. Here is what every policyholder must do:
• Disclose everything honestly at the time of purchasing your policy. This includes all pre-existing conditions, lifestyle habits like smoking and/or alcohol, lifestyle disease like diabetes and any family medical history or genetic diseases. Non-disclosure is the single biggest cause of claim rejection.
• As a responsible policyholder, you must read the policy document carefully and understand waiting periods, exclusions, sub-limits, conditions precedent to a claim, etc.
• Whenever there is any planned hospitalization, intimate the insurer promptly or notify in advance. In case of any emergencies, inform them within 24–48 hours as specified in your policy. Wherever possible, use network hospitals for cashless treatment and avoid the problem of reimbursement claims.
• Keep documents like prescriptions, various test reports, hospital and pharmacy bills carefully, all in one file. Incomplete documentation and paperwork is a common cause for claim rejections or claim delays.
• Update your nominee details if necessary whenever there is an event like marriage, divorce, death of the first nominee, etc. without any delay. 
• Track your claim status periodically and if you face any unjustified delays, try to escalate the issue through the insurer’s grievance portal or insurance ombudsman.

Conclusion

There have been many instances where the insurance companies have rubbed salt on the wounds of their clients by rejecting claims or paying far less than the claim amount or delaying the process of the claim settlements. The Claim Settlement Ratio is not a dry actuarial number and it is a measure of an insurer’s character.

So before you compare premiums, before you weigh riders, before you calculate returns on a ULIP, check the CSR and check it over multiple years and then choose an insurer who has kept their promises over the years.