Unpacking Claim Settlement Ratios of Life Insurance: Why They Are Important For You?

Many life insurers often tout high CSR, usually exceeding 90 per cent, as a testament to their reliability and customer-centric policies. Let’s take a closer look to get a more nuanced picture.
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Claim Settlement Ratios (CSR) are one of the most significant metrics for policyholders to consider while choosing or buying a life insurance policy. This ratio reflects the percentage of claims an insurer settles compared to the total number of claims received. “Improving and maintaining CSR involves continuous efforts and several key steps,” says Dr. Porus Peshoton, EVP & Chief Underwriter, Max Life Insurance. He states various measures from ‘Quality Control’, conducting regular audits to ensure claims are processed accurately and in compliance with regulations, to improving communication channels with claimants to provide timely updates and reduce frustration as key elements to maintain a good CSR.

Many life insurers often tout high CSR, usually exceeding 90 per cent, as a testament to their reliability and customer-centric policies. Let’s take a closer look to get a more nuanced picture.

Who Stands Where: Ranking Indian Life Insurers by CSR

If we divide the CSR of life insurers into three performance matrices i.e. top (above 90%), middle (85-90%), and low (below 85%) tier - then almost every company is a top performer when it comes to claim settlement.

The picture below shows the latest claim settlement data for all life insurance companies (Source: Bank Bazaar.com)

How is CSR Calculated?

Typically the equation used to calculate the claim settlement ratio is as follows: 

CSR = (Total number of claims settled in a year / Total number of claims in a year) multiplied by 100. 

For example, an insurance provider, Company X, resolved 9,500 out of 10,000 claims during the 2023-2024 period. In that case, the company's CSR would be 95 per cent (9,500/10,000 x 100).

You must be wondering if all life insurers follow this standard way to calculate claims or does it differs and depends in terms of how they report and calculate CSR.

Says Shilpa Arora Co-Founder & COO of Insurance Samadhan, “Different insurers might have slight variations in how they report and calculate CSR. For instance, some might include only fully settled claims, while others might also count partially settled ones. Regulatory standards by the Irdai aim to ensure uniformity, but policyholders need to understand these nuances to make an informed decision.”

Is high CSR truly indicative of a smooth claim settlement process by insurers?

“High CSR is not true indicative because it indicates the number of claims settled and not the value of claim settled. The percentage is calculated against the number of claims registered, if a claim is not registered due to a lack of documents or other objections then the percentage can be misleading,” Arora states.

She adds, “Almost 100 per cent of claim is settled for policies running for 3 years due to interpretations of Section 45. Which means early death claim rejections would be higher in numbers. Insurance Samadhan gets many early death claims where Insurers try to reject claims on frivolous grounds. However, most insurers are serious about claim settlement and have clear guidelines for smooth processes.”

Inclusions: All claims received and processed within a financial year are typically included in the calculation.

Exclusions: Pending claims, partially settled claims, or those rejected on technical grounds might not be reflected in the CSR.

What is the best way to clear the fog of 99% CSR for policyholders?

Industry is well regulated and claim settlement is a very critical parameter but it is more of an image builder rather than a true indicator. “Poor claim settlement can be attributed to bad selection in one year but the company takes corrective action in subsequent years. Hence, claim settlement for 5 years may be a true indicator,” Arora suggests.

Industry View: How To Educate policyholders on claim processes

Dr Peshoton says, “Educating policyholders about the claims process and necessary documentation is crucial for ensuring they understand their coverage and can efficiently navigate the claims process when needed.” He lists the following ways in which insurers can clear claim processes to the insured/buyer:

1. Clear Documentation

Policy Booklets and Brochures: Policyholders could refer to information in the policy document about the claims process and required documentation.

FAQ Section: Develop a comprehensive FAQ section that addresses common questions related to claims.

Guides and Checklists: Create easy-to-follow guides or checklists outlining the claims process and necessary documents.

3. Customer Service and Support

Dedicated Helpline: Offer a helpline specifically for claims-related queries.

Live Chat: Implement a live chat feature on your website for real-time assistance.

In-Person Assistance: Provide in-person support at branches or through scheduled appointments.

4. Educational Videos

Tutorials: Create videos that explain the claims process and demonstrate how to complete forms.

6. Regular Communication

  • Policy Renewal Reminders: Include reminders about the claims process and necessary documentation during policy renewal communications.

  • Proactive Outreach: Periodically reach out to policyholders to remind them of the claims process and provide any updates.

What are the most common reasons for claim rejections?

“While the motive is to ensure that all genuine claims are paid, the most common reason for a case going into repudiation is material non-disclosure at the proposal signing stage,” Dr Peshoton states. 

This usually means that the insured did not disclose certain important information that would have otherwise impacted the issuance of the policy. “The most common non-disclosures are health-related, for example, not disclosing a medical condition that would have influenced the underwriting decision at the time of policy application,” says Dr Peshoton. 

Arora adds, “Non-declaration of lifestyle habits like smoking, old insurance policies, correct occupation, correct income, correct education levels are also common reasons for claim rejections.”

Certainty of claim is the most important factor for buyers of insurance, and claim settlement ratios do indicate how sure one can be that a claim will be settled.

Says Asha Murali, Partner, Actuarial Services, BDO India, “However, buyers should ensure that they take responsibility for providing correct information to the insurance company and not rely solely on claim settlement ratios.”

Most times the need to provide accurate information about their health or any other particulars sought by the insurance company is not understood by the buyer. 

“It is extremely important to do so as this information will be used by the insurance company in arriving at a decision to offer cover or deny or the terms and conditions on which to offer cover. Certainly, buyers should look at the claim settlement ratios while choosing providers, but they should take the onus of providing the right information.”

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