4 Things your Claim Settlement Ratio is Not Telling You

Claim settlement Ratio. It’s usually the first thing you notice on any insurance company’s website these days. Financial advisors too, tell you to look at the top claim settlement ratios of insurance companies in India - to understand if the insurer is dependable or not. And sometimes the ratios provided by two of your shortlisted insurers are so close to each other - that you are left wondering how to choose between them!

If you don’t pay enough attention, it’s easy to assume that the claim settlement ratio is a simple metric that shows the probability of your claim being approved by the insurer. But - this is a dangerous mistake to make. Let’s explain why. 

Prefer watching a video instead? 

First - let us understand what a claim settlement ratio basically is. The formula is - 

Claim settlement Ratio = No. of claims settled : No. of claims received 

(In any given financial year)

Simply put - it means that an insurer receives 100 claims, and they approve 95 of them - their claim settlement ratio will be 95% for that particular financial year. 

What the claim settlement ratio is not telling you - 

• Ratio of Valid claims paid : Valid claims received. 

A claim settlement ratio does not show how many valid claims came in and how many valid claims were settled by the insurer. There are instances where the insurer settles fraud claims too. The claim settlement ratio doesn’t show us whether the claim settled by the insurer is valid or not. 

A good insurer has strong financial control. It is their responsibility to segregate valid claims from invalid ones - so that they stay in business until a time - when your claim occurs. Having said that - the claim settlement ratio doesn’t consider this fact. 

A good insurer might end up having a bad claim settlement ratio in a given year - if they come across several fraudulent claims. 

• Claims experience

The claim settlement ratio does not mention anything about the claims experience itself. In our experience, there are several factors that influence the claims experience. How quickly are the valid/ approved claims paid? How easy is the claims process itself in terms of the form length, documentation etc? How helpful is the call-center when you make a call to get some information? Will your family have to follow-up repeatedly to get the right information? All this together will provide some insight into how smoothly your claim will be processed. 

Even if a company has the highest claim settlement ratio in India, this is not an indicator of the experience you'll have.

• Claim amount settled by the insurer:

One way for an insurer to keep their claim settlement ratio high is by quickly approving all low-amount claims, and reject the high-ticket ones. According to a claim settlement ratio - a claim of 5 lakhs is one claim, and a claim of 2 crores is also taken as one claim. There’s no difference between the two. 

So, you don’t really know how much money has been paid out to families, compared to how much amount they had claimed. 

• Claims settled for a specific product

If you want to know the claim settlement ratio for a term insurance policy, the ratio you’re seeing on the insurer’s website might be misleading. That is because the claim settlement ratio is calculated for all the products like endowment plans, group insurance plans, etc. Remember - the sum assured in a term plan can be very high compared to any other type of investment. So, there might be a possibility that your insurer is rejecting claims of a term plan and paying for other plans - still effectively maintaining a high ratio. 

So - if not the claim settlement ratio, then what?

That’s what people asked us, when we busted the myth around the Claim Settlement Ratio. 

We dug up data across various sources including insurer portals and IRDAI website amongst others, to sift out relevant insights to give you a decent preview around the experience you are likely to have when you buy a particular brand.  

We bundled all these metrics, put them in the order of impact and importance for you as a consumer, and built what we call Beshak⭐Ratings!

It is an effort on our part to give you an unbiased and data-backed solution for insurance comparison. This is our endeavour to allow our community members objectively compare term insurance products and make an informed purchase decision. 

Beshak⭐Ratings is accessible for free, for all our community members. You can check it out here. 

In addition to checking Beshak⭐Ratings, you can do certain things from your end to ensure that your family gets a smooth claim settlement process. 

Here are some such tips. 

1. Always fill the form accurately and honestly - so there is no discrepancy that becomes a reason for your claim delay/ rejection. Remember - you won’t be around to offer an explanation. 
2. Go through the claims process even before buying the insurance plan - make sure you’re doing everything right keeping in mind the end goal which is - a smooth claim. 
3. Take your nominee through this process, give them access to all the documentation they’ll need so they are well prepared for a situation, if and when it occurs. 

We would love to hear about any claims experience you or your friends/ family have gone through. Share them in the comments below so your learnings can help another family make the right decisions and get their claim settled smoothly too. 

Got a question you’d like to get clarified? 

You can post it on the Beshak Insurance Forum - and get answers from vetted experts, for free!