Why Claim Settlement Ratio matters?

Why Claim Settlement Ratio matters?

by 5paisa Research Team Last Updated: Aug 24, 2023 - 12:54 pm 182.8k Views
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Trust is the cornerstone of insurance. People pay premiums and when the term expires or in case of any unforeseen event, the company settles their claims. This is more important in the case of life insurance because in such cases, people want to ensure that their families maintain a comfortable life in case of their demise. Timely settlement of claims increases people’s trust and results in customer satisfaction. Likewise, delayed and non-settlement of claims erodes the customer base.

Before we proceed to discuss “Why Claim Settlement Ratio matters”, let us get some basics sorted.

What are claims?

A claim is a formal intimation to the Insuring Company for receiving the sum assured by the policy. After validating the claims, the company pays the agreed amount. This is known as claim settlement.

Circumstances of Claim Settlement

Claims are settled under two cases-

  • Maturity – Once the policy completes the term agreed, the claim is settled. This is for Endowment, Money back, and Child plans.
  • Death – Settlement of claims due to death of Policyholder during the term of the policy falls under this category. Death may be accidental, due to illness, or natural.

    Claim Settlement Ratio:
  • It is the proportion of claims that have been settled by the total number of claims received by the company.
  • Thus, if for every 100 claims received by the insurer, 90 claims were settled, the Claim Settlement Ratio stands at => ((90/100) *100%) = 90%

What does claim settlement ratio signify?

In simple words, claim settlement ratio signifies how likely it is for a customer to get the payment of the sum agreed. It does offer a good estimate about the insurer, and its trustworthiness. This is of primary importance in the case of Life Insurance. In the case of death of the insured, it is of critical importance that the insurer honours its commitments.

As per insurance guidelines, the insurer is compelled to pay the insured amount to the customer if all checks are met.

In general, the following reasons may lead to non-payment of the agreed amount.
Fraud – Any attempt by the customer to defraud the insurer will lead to non-payment of due amount. In many cases, the customer can try to cheat the company by quoting a higher value of the insured goods/property. In such cases, the company is not bound to honour the agreement and may deny paying the amount.

Contractual reasons – If the insured do not understand the terms of the contract properly then they make claims on events that may not be covered by their contract. Suppose you have property insurance with “Buildings Only” cover, and you make a claim based on damage to contents, it will be rejected. This is a very common case of claims rejection. Customers should be careful when reading the fine print of any contract and discuss with a legal advisor if necessary, before proceeding.

Legal reasons – This occurs in cases where the legal heir/beneficiary of the policy cannot be determined. If a person dies intestate, the insurer will wait till the beneficiary is identified and then proceed for settlement. Litigation in these cases is often drawn out and results in delayed payment of the due amount.

Misrepresentation - The Company can also deny payment if the insured is unable to prove the authenticity of the documents submitted. Any mismatch in the documents or any misrepresentation of facts may lead to non-payment of the amount.

Ground Reality

However, even in cases when the insured or the beneficiary passes all checks and conditions, the company refuses to pay the due amount. This issue has become so serious that the IRDA has enforced strict oversight over these operations.

Several complaints have been lodged in consumer courts in cases of payment repudiation. A common trick is to force the customer to continue the policy by not settling the amount. The customer is then offered a choice of deferred payment after some more period or no payment at all.

The Claim Settlement Ratios of some popular insurers are:

Life Insurance Companies

Claims Settlement Ratio (%)

LIC

97.73

ICICI Prudential

96.29

HDFC Standard

95.76

SBI Life

94.41


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