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25 Jan, 2022 | Opinion

Why You Cannot Rely On The Claim Settlement Ratio Alone To Choose your Insurer?

Team Beshak
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When you decide to buy an insurance policy - term or health, most insurers and/or advisors will suggest that you purchase from insurance companies that have the highest Claim Settlement Ratio. Most sellers consider the Claim Settlement Ratio as the gold standard of an Insurer’s worth. In fact, the Claim Settlement Ratio regularly finds a mention in the ads run by insurers/brokers/aggregators & it prominently shouts out on their websites.

But, what exactly is Claim Settlement Ratio? How does it work? And, can you rely on it alone to make your purchase decision? Let's find out. 

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What is the Claim Settlement Ratio?

The meaning of a Claim Settlement Ratio is quite simple - it is the percentage of claims the insurer has settled with respect to the total number of claims received in a financial year. The formula is - 

Claim Settlement Ratio = Number of claims settled/Number of claims received 

(In a given financial year)

Let’s understand this concept better with the help of a simple example.

An insurance company receives 100 claims and they have only settled around 90 claims; this means the insurer’s Claim Settlement Ratio is 90%. 

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What are the Limitations of the Claim Settlement Ratio?

Claim Settlement Ratios published by insurers don’t tell the complete story. There are many limitations. Let us take a quick look at some of them -

1️⃣ Does not show the number of valid claims settled and received 

The major role of an insurance company is to make sure they have enough money in the long run to pay valid claims and to make sure they find the fraud claims and decline them. If they fail to find the fraud or invalid claims and pay off every claim, then there is a high chance that when the people with valid claims show up, there will hardly be enough money left for them. Therefore, it is important for the insurer to stay profitable in the long run. Also, it would be good if there is a process of independent audit of Insurers that reports claims data split into valid and invalid claims. 


Let’s look at the following table for three insurers, their claims received and claims settled.

InsurerTotal ClaimsValid ClaimsInvalid ClaimsValid Claims SettledInvalid Claims SettledTotal Claims SettledClaim Settlement Ratio
Insurer A10090109009090%
Insurer B1009829809898%
Insurer C1009289259797%

Say an insurer A  gets 100 claims in a given year. Of these, only 90 are valid claims - and the rest are either simply invalid or fraud cases. And hence, they settled 90 of the 100 claims - and ended up with a claim settlement ratio of 90%.

And another insurer B also gets 100 claims in the same year. Only two of their claims are fraud cases. They too, pay off all the valid claims - and end up with a claim settlement ratio of 98%. 

Take another case of insurer C, who also receives 100 claims in a year. Of these, they find that 8 claims are fraud cases. However, they pay off 5 of the 8 fraudulent claims, and the 92 valid ones. They end up with a claim settlement ratio of 97%. 

Now, which insurer is likely to be a good one, for your long-term financial security? 

Although Insurer C has a high claim settlement ratio, you see that they’re paying off invalid/ fraud claims - meaning they might not remain profitable in the long-run, by the time your family’s claim occurs. 

On the other hand, insurers A & B - have declined all fraud/ invalid claims. Luckily for Insurer B, the claim settlement ratio remains high - while for A, it is low, despite them actually doing their job. 

This is an over simplified example - and the real numbers can be much more complex. Result? The claim settlement ratio can be very misleading about the insurer’s intent to settle your claim. 

2️⃣ Does not reflect the service quality experienced by customers

A Claim Settlement Ratio does not tell about the average time taken by Insurers to settle claims. There have been instances of some families getting claims paid after 2 years. This is quite common among term insurance policies, especially in case of early claims needing investigation. This can cast a huge financial impact on the families who are dependent on the term insurance money for their livelihood. 

Secondly, the Claim Settlement Ratio does not give any insights into the claims experience. It does not show how smooth the Insurer’s processes are to support you and your family in the event of a claim.  A few important points could be - 

  • How easy is it for your family to reach a support executive to get the claim?
  • Is the claims process digital? 
  • How long is the claims form? 
  • How long does it take for the claim to get processed?
  • Does the insurer offer a home pick up of documents? 

And many other questions you might have regarding the claims process and experience - won’t get answered by the claim settlement ratio. 

3️⃣ Does not give any weightage to total Claim amount paid

Let’s say an insurer has received 98 claims of Rs 3 lakhs each in a year, and 2 claims of Rs 1 Crore each. And say - they’ve settled all the smaller claims and paid out an amount of 98 X 3 lakhs = 2.94 Crores. But, they rejected both the large claims, amounting to 2 Crores. 

Now, what is their claim settlement ratio? 

Since they settled 98 of 100 claims, their claim settlement ratio is 98%. 

However, if you see the amount they’ve settled, of the amount that was claimed, you’ll see that their Claim Value Settlement Ratio is 

2.94 Crores/ (2 + 2.94 Crores) ~ 59.5%

And if you’re buying a large term insurance plan, it can be your family’s 1 Crore claim that’s rejected - even though you bought the plan looking at the insurer’s 98% claim settlement ratio. 

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What is a good alternative to Claim Settlement Ratio?

Our team at has dug deep, collated data from various independent sources and formulated our own rating system, based on 100+ parameters, to give customers an unbiased & scientific method of comparing Insurers on claims & service experience - and built Beshak⭐Ratings. 

Here, you can find the top term insurance plans in today’s market, compare features and find the best ones for your needs. It includes a detailed preview of each insurance plan covering product benefits, claims experience, and the customer service that each of the Insurers offer. 

So, check out the Beshak⭐Ratings and get a more holistic view of Insurers and their claims/service experience right away! 

Key takeaways
  1. The claim settlement ratio is the percentage of claims the insurer has settled with respect to the total number of claims received in a financial year.
  2. It doesn’t tell you the complete story - and hence, you should not rely on it.
  3. The claim settlement ratio doesn’t show you the number of valid claims received and settled by the insurance company.
  4. You cannot know if the customer service of the insurance company is good or not - just by looking at their claim settlement ratio.
  5. The claim settlement ratio doesn’t tell you if the insurance company will settle your family’s claim or not.
Team Beshak
Written by,
Team Beshak, We breathe insurance :)

We are a group of young members of the Beshak community. We come together to brainstorm, write relevant and useful content for people (just like us) who want to figure insurance on their own. If you too want to share inputs/write for us - send us a "hey" to

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