Claim Settlement Ratio: What It Is And How To Evaluate It When Buying Insurance?

People buy insurance and pay a premium so that they can make claims when the need arises. Whether it is life insurance, health insurance, or other general insurance like health or car insurance, the purpose of insurance is fulfilled when the company upholds the claim.  The claim settlement ratio of life insurance companies is a critical indicator that represents the percentage of claims settled by an insurance company out of the total claims received in a specific financial year. It reflects the insurer's efficiency in processing and honouring claims filed by policyholders.

The industry benchmark for the claim settlement ratio is typically set above 95 per cent. “This benchmark signifies that a reputable insurance company aims to settle at least 95 per cent of the claims it receives in a given financial year. Policyholders should look for insurers that meet or exceed this benchmark to ensure a high probability of successful claim settlements,” Vighnesh Shahane, MD & CEO, Ageas Federal Life Insurance said.

However, the claim settlement ratio is looked at differently for life and health insurance companies. ‘For life insurance, the claim settlement ratio is considered for an entire year. Whereas in health, a ratio of claims settled in less than 3 months is looked out for,” Naval Goel, Founder and CEO, PolicyX.com said.

The claim settlement ratio can also vary between general and life insurance companies based on their respective business models and risk profiles. “It is advisable for policyholders to consider the claim settlement ratio specific to the type of insurance they are purchasing. Life insurance companies typically have separate ratios for individual life and group life policies, while general insurers focus on non-life policies,” Sahane said. 

Look For A Higher Claim Settlement Ratio When Buying Insurance 

“The higher the claim settlement ratio of an insurer, the better they are with settling the claims. So, go for the insurers who have more than 95 per cent CSR for a given financial year,” Goel added. 

However, claim settlement ratio should not be the only factor that one should look at. An insurance company may reject claims when the policyholder has not made proper disclosures or has given incorrect information. In that case, the claim is being rejected on proper grounds. Hence, while it is a good judge of how an insurance company settles its claims, it may not provide an accurate picture. 

One should also look at the company’s finances, customer reviews, and claim settlement time before making a decision.