What Does the Claim Settlement Ratio Mean?
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Unforeseen circumstances can often have a grave impact on the financial health of a person or even an entire family. That is why the importance of life insurance cannot be overstated. In the event of the demise of the financial provider, life insurance policies offer their dependents a much-needed financial safety net.
However, not all life insurance policies are alike. Some offer additional benefits, some offer flexibility in tenure, while others offer economic premiums. With the variety of insurance products in the market, it can be difficult for insurance-seekers to narrow down on the policy that best meets their needs.
This is where an important feature known as the Claim Settlement Ratio comes into play. It is an objective, numerical feature that can help you make the crucial decision of which life insurer you should opt for. Here is all you need to know about the claim settlement ratio.
What is the Claim Settlement Ratio?
The Claim Settlement Ratio (CSR) of an insurance company is the percentage of insurance claims settled in a financial year compared to the total claims filed. CSR indicates the credibility of the insurance company. This highlights the importance of your life insurance policy, since having your claims reliably filed and settled is a crucial aspect of your policy.
In general, the Claim Settlement Ratio of an insurer is viewed as an indicator of its overall claim-solvability and risk management ability. The higher the Claim Settlement Ratio of an insurance company, the better.
How is Claim Settlement Ratio Calculated?
The Claim Settlement Ratio of an insurer is calculated using the formula given below:
Claim Settlement Ratio = (Total no. of claims approved/Total no. of claims received) x 100
This result is represented in the form of a percentage. Let us assume that an insurance company has a Claim Settlement Ratio of 70%. This means that for every 100 claims received by the insurer, 70 claims are settled and paid out.
It is important to keep in mind that a Claim Settlement Ratio is not just an aggregate of claims paid out for life insurance policies, but all forms of insurance offered by an insurer.
Why Is Claim Settlement Ratio Important?
The importance of life insurance lies in the assurance that, in the unfortunate event of the demise of the insured, his or her beneficiaries will be able to claim the insurance coverage. This, in turn, will help them look after their current and future financial needs in the absence of the insured. This is the primary agreement made between the insurer and the policyholder.
Having said that, there are certain circumstances under which the claim might not be paid out. Some of these factors might be related to the insured. This could be missing or incorrect information while filling out forms, or hiding one’s medical history while availing life insurance policies. Other reasons for claim rejection could also be related to the insurer, such as incompetent practices and low trustworthiness.
Conclusion
At the end of the day, life insurance policies can only be as reliable as the insurance company that provides them. Thus, the Claim Settlement Ratio helps an insurance-seeker make an accurate judgement of the trustworthiness and competence of a potential insurer.
