One of the most important tasks while buying an insurance policy is to check the company's record of settling claims. The claims settlement, represented as a ratio, is the percentage of claims settled among the claims received by the insurance company during a given period. It is calculated by dividing the number of claims settled against the total number of claims filed. This is an important consideration for buyers to ensure that the idea of buying insurance-financial reimbursement against a loss-remains intact.
Often, especially more so in case of life insurance, a claim is made during a time of great grief and sadness for the dependants. While there is no way to compensate for such loss, timely clearance of the claim cushions the financial fallout for the family arising from the death or disability of the insured person.
However, remember that merely buying insurance does not mean that the claims will be accepted. A claim can be rejected for various reasons, like non-disclosures, partial disclosures, wrongful disclosures or fraudulent claims. Typically, companies which have an elaborate process tend to have good claim settlement ratios.
Suresh Agarwal, EVP and head, individual distribution and strategic initiatives, Kotak Life Insurance, says, "Good claim settlement indicates healthy customer sourcing and underwriting practices at the company."
To improve the chances of settling a claim, buyers must ensure that at the time of buying the policy, they fill their own forms and provide only the correct information. Disclosing health-related problems in the family and other details asked in the form may look inconvenient and increase the premium, but it will go a long way in ensuring that there are no issues at the time of a claim.
Melvin Joseph, founder, Finvin Financial Planners, explains, "If a company has a claim settlement ratio of 97%, it still means that 3 out of 100 claims are rejected by that company. What is the guarantee that your claim will not figure in the 3%? Make sure that you disclose information about your health condition, habits like smoking, drinking etc. at the proposal stage."Experts believe that claims settlement ratio is an objective yardstick that helps consumers decide if a particular insurance company is reliable or not. Yashish Dahiya, CEO, PolicyBazaar.com, says, "Ideally, a consumer should buy from a company whose claims settlement ratio of above 95%".
Buyers can check the claim settlement figures in the annual report of Insurance and Regulatory Development Authority (IRDA), which is uploaded year-wise on the regulator's website. However, Agarwal points that this data should be seen and judged cautiously. "It is important to consider both individual as well as group claims, as these two groups form the universe of customers for the insurance company," he says.
There is one other ratio that the buyers can consider. The repudiation ratio is a measure of the number of claims rejected by an insurance company and is calculated by dividing the number of claims rejected by the total number of claims filed. Dahiya says, "One should always check CRR as it tells us about the overall process quality of the insurers." He further adds that even though genuine cases are never rejected, CRR does provide insight into the insurer's probability to reject the claim.
To understand the difference between claims and repudiation ratio, consider this example: If a company has a claim settlement ratio of 95%, it implies that of a total of 100 claims, 95 claims were settled by the insurer. The remaining five claims stand repudiated i.e. rejected or pending. On the other hand, a claim repudiation of 45% would imply that 45 out of every 100 claims have been rejected by the insurer, and the rest have either been accepted or are pending.
Experts believe that while both the ratios are important, it is important to look at the figures of CSR and CRR in both life and nonlife insurance. Also, before judging a company on the basis of these two ratios, check how old the insurance company is because if a company less than two years old, these figures will not be properly benchmarked against the industry and hence, should not be considered.