How do you buy an insurance policy? Is it after checking if it is popular? Or do you choose one with the highest sum assured? Some even buy policies with the lowest premium. However, these are not great ways to choose an insurance policy, particularly a life insurance policy.
You should be checking out the insurance company that is issuing the policy. Why? You should be buying the policy from an insurance company that settles your claims quickly. How do you check that? You can use the claim settlement ratio. This ratio will help you understand whether the company is rejecting a number of claims. Here’s more about the claim settlement ratio.
What is claim settlement ratio?
The formula used to calculate the claim settlement ratio is the number of claims settled by the company divided by the number of claims received by the company. This is expressed as a percentage. If the company’s claim settlement ratio is 99%, it is rejecting just 1% of the claims that it receives. Obviously, the insurance company that has a higher claim settlement ratio will be preferred.
In India, claim settlement ratio for life insurance ranges between 80% and 98%. Even health insurance companies have claim settlement ratios. However, the claim settlement ratio for health insurance is much lower than that of life insurance. This is because health insurance plans have a lot of exclusions and all claims might not be entertained by the insurance companies.
Where to get it?
The Insurance Regulatory and Development Authority of India (IRDAI) provides the claim settlement ratio of insurance companies in its annual report on the insurance industry. This is a report that is released every year. The report will have details regarding insurance companies such as claims, industry average and other such data.
If you look at the data from IRDAI for 2016-17, the average claim settlement ratio for private insurance companies has been at 93.72%. Think this is good? Wait till you know LIC’s claim settlement ratio. LIC has the highest claim settlement ratio in the industry. It is 98.31%. However, note that there are many private insurance companies including Max Life and Aegon Religare who have a claim settlement ratio of over 97%. The top insurance companies in terms of highest claim settlement ratios are LIC, Max Life, HDFC Life, Aegon Religare and ICICI Prudential Life Insurance.
Also, the average rejection ratio for private insurance companies has come down in the last few years. The rejection ratio was earlier at 6.67%. Now, it is around 4.85%. What if a company has a low claim settlement ratio and a high rejection ratio? It is best not to choose to buy a policy from the company. However, you must understand that for new insurance firms the claim settlement ratio will be low. This is because they might receive many fake claims which they have no choice but to reject.
There are about 24 insurance companies in India and most of them have a claim settlement ratio of 85% to 98%.
Why this ratio is not the only measure
Even though claim settlement ratio is a good way to avoid insurance companies that don’t settle claims, it shouldn’t be the only criterion for evaluating an insurance policy. You should compare policy features, look at the premium, understand the exclusions and ensure that the best sum assured is being offered. This can be done once you shortlist some firms based on the claim settlement ratio.
Want to know how to choose an insurance policy? Read this article – What To Look For When Buying An Insurance Product.