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Ref. No. KLI/22-23/E-BB/492
The claims settlement ratio is one such factor that you must consider before buying term insurance. Read to know the importance of the claims settlement ratio & how to calculate it?
Term insurance plans are popular with the masses due to their simplicity and cost-effectiveness. However, you must be careful before choosing one. The claims paid ratio is one such factor that you must consider before buying term insurance. Read on to know more about the importance of the claims settlement ratio.
There is a total of 24 IRDAI-approved insurance firms in India. As an insurance buyer, you may have various choices, but choosing the right insurer can be overwhelming, especially if you are a first-time insurance policy buyer. You must consider several factors before making the decision. One such critical fact is the claim settlement ratio of the insurance company.
The Claim Settlement Ratio (CSR) of an insurance company is calculated by dividing the total claims paid in a period by the total claims filed in that period with that company and multiplying the resultant number 100.
CSR = (Number of claims paid /number of claims filed) X 100
For example, consider an insurance company where 10,000 claims were filed in the year 2020. During the same period, the company settled 9,300 claims. Therefore, the claim settlement ratio of the company for the year 2020 will be calculated as follows:
CSR = (9,300/10,000) x 100 = 93%
It is important to note that the CSR of an insurance company is not derived from the data from any single policy that it offers. Instead, it is derived after taking data from all its policies that are on offer. Every month the Insurance Regulatory and Development Authority of India (IRDAI) releases the CSR of all insurance companies for the customer’s benefit.
A term insurance buyer should always look for the following points related to CSR while selecting a suitable insurance firm.
It must be clear by now that a term insurance buyer should always buy insurance from the insurance firm with a high claim settlement ratio. Ideally, it should be above 95 per cent.
The CSR should be consistently high over a period spanning at least five years. It is normal to have some decent fluctuations in numbers due to reasons beyond the control of management. But the numbers should follow a decent pattern with the growth of the company.
As already discussed, the claims settlement ratio is a vital factor when evaluating a company’s credibility. However, refrain from overtly emphasising a high claim settlement ratio alone. The claim settlement ratio depends on the number of claims filed with a firm.
The size of the company affects the ratio as well. Thus, apart from the claim settlement ratio, you should also consider other factors like the company’s reputation and goodwill. Moreover, consider the company’s credit rating. A company rated AAA shows it is financially strong, maintains a good debt ratio, and can handle claims even in a stressed environment.
The claims settlement ratio is an essential determinant while choosing term insurance. However, use it flexibly, along with other factors, to compare different products. Take your time. After all, it is not just about ensuring a financial safety net for your family but also about your peace of mind.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
