A Quick Take on Claim Settlement Ratio

A claim settlement ratio or claim paid ratio of the insurer or insurance company is among the important calculation metrics to be considered when opting for a life insurance plan.

A claim settlement ratio underscores the number of claims settled by an insurer as against the number of actual claims filed by the policyholder or their nominees. In simple terms, a claim settlement ratio is the ratio of total claims received or pending in a financial year and total claims resolved by the insurer.

A claim settlement ratio is arrived at by dividing the total number of insurance claims paid by the total number of insurance claims received by the insurer, multiplied by 100. For example, an insurer receives 10,000 new claims in a particular year. If the insurer pays 9,800 claims and leaves the remaining pending due to other reasons. The claim settlement ratio for the insurer will be (9,800/10,000×100) or 98% in a financial year. 

Typically, the claim settlement ratio highlights the past performance of the insurer. As a thumb rule, a claim settlement ratio of more than 80% is regarded as good. The best insurance companies in the country offer a claim settlement ratio of above 95%.

With the claim settlement ratio, it is also possible to gather an understanding of the average time the insurer takes to settle the claim. 

As per the Insurance Regulatory and Development Authority of India (IRDAI), after all the documents have been submitted, an insurance company is liable to settle the claim within a limit of 30 days. 

The time that the insurance company will take to clarify and verify the details is all included in this limit. In certain exceptional cases or circumstances that call for further investigation, this limit could be extended up to 120 days to settle the claim. 

A life insurance plan is aimed at providing financial support to families in the eventuality of the demise of an earning member. A higher claim settlement ratio highlights the efficiency of the insurer in terms of claims paid. So, it remains crucial for anyone to check the claim settlement ratio along with other parameters before zeroing in on an insurance plan.

Every year, the insurance regulator IRDAI uploads the claim settlement ratio report of all the insurance companies in India on its website. It would be worthwhile to check this information before opting for a particular insurance company. Claim settlement ratio along with other parameters, will help anyone decide on the efficiency of an insurance company.

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