How do you evaluate an insurance company? One way of finding out is how well they honour their claims. After all, that is what insurance is all about. Here two rations become important.
Insurance Claims Ratios
“The claims settlement ratio reflects the proportion of claims resolved by an insurer compared to the total number of claims received. For instance, if an insurer receives 100 claims in a quarter and resolves 90, the claims settlement ratio is 90 per cent. This metric evaluates the efficiency of an insurer’s claims processing,” says Narendra Kumar Bharindwal, vice president, the Insurance Brokers Association of India (IBAI).
According to IBAI claims insight report, the claim settlement ratio, especially for several private insurers is usually about 80 per cent when it comes to settlements of claims which have been made. There are variations amongst insurers that the claim report highlights. An 80 per cent Claim Settlement Ratio means that 80 per cent of the claims were paid and 20 per cent rejected or closed without payment.
The 20 per cent of claims rejected may have been rejected owing to good reasons that include fraudulent/false claims, claims falling out of the purview of the policy, material misrepresentation of facts or deliberate concealment of facts, and claims in the waiting periods, such other exclusions outlined in that policy. For clarity, an 80 per cent claim settlement Ratio does not mean that 20 per cent of the claimed amount is not paid.
In contrast, the claims paid ratio focuses on the monetary value of claims settled. If the total value of 100 claims amounts to Rs 1 crore, and the insurer pays claims worth Rs 60 lakhs, the claim's paid ratio is 60 per cent. This figure underscores the financial proportion of payouts relative to the total claim value lodged.
Making Sense Of These Ratios
Both ratios are invaluable for customers seeking insights as to which insurer they should go for. “A high claims settlement ratio signals the company’s efficiency in processing and approving claims. Similarly, a strong claims-paid ratio assures customers of the insurer’s financial capacity to meet its obligations, especially in high-value claims,” says Siddharth Singhal, head, health insurance, Policybazaar.
While useful, these ratios have notable limitations when used in isolation. “A high claims settlement ratio may indicate efficiency in settling numerous low-value claims while obscuring delays in resolving more complex, high-value cases. Conversely, a low claims-paid ratio doesn’t necessarily imply claim rejections; it may simply reflect pending high-value claims still under assessment,” says Bharindwal.
