IRDA has announced the Claim Settlement Ratio for 2016-2017 in Dec 2017. This is valid as most recent till Dec 2018, when the next year’s data will be published by the Regulator. If you are looking for a term insurance plan, you MUST know the IRDA Claim Settlement Ratio (CSR) before making the decision. At this point, we must tell you that in spite of the fact that overall CSR is NOT the best way to decide on your term insurance plan, you cannot ignore it because it is one of the best available indicators as of today.
Definition / Formula of Claim Settlement Ratio
Claim Settlement Ratio = Total Claims Approved (paid to nominees) divided by Total Claims Received by the Company.
So Claim Settlement Ratio (or IRDA claim ratio) is the total number of death claims approved by an insurance company, divided by the total no. of death claims received by the insurance company. It is generally measured for a period of one financial year. It is measured for all products of the company put together (not term insurance plans alone).
To explain this, if an insurance company received 1000 death claims between Apr 1, 2015 and Mar 31, 2016, out of which it
- paid 973 claims to the nominees of those dead,
- rejected 16 claims, and
- is yet to take a decision on the remaining (1000-973-16=) 11 claims,
- the claim settlement ratio (or claims acceptance ratio or claims ratio) of the insurance company = 973/1000 = 97.3%
- the claim repudiation ratio (or claims rejection ratio) of the company = 16/1000 = 1.6%
- the claim pending ratio of the company = 11/1000 = 1.1%
All claims ratios are measured in percentages. And thanks to standardization done by the IRDA, the Insurance Regulator of India, it’s that simple to measure and it is therefore a great idea to use Claim Settlement Ratio for Term Insurance buying. IRDAI publishes this information annually. Claim Settlement Ratio 2016-2017 is not yet announced by IRDAI. The latest one available is published in 2016, for the period 2016-2017. This will be valid till Dec 2017, when the next report will get released by IRDA. Claim Settlement Ratio or Claim Clearance Ratio has a simple formula. Claims Settlement Ratio is defined as the ratio of claims paid to nominees by the insurance company and total claims received from customers. The balance claims are either rejected for impersonation, misrepresentation, fraud, etc. or pending for decision by the life insurance companies.
Now, it’s time to dive into the numbers.
Claim Settlement Ratio 2016-2017 Announced by IRDA
Overall, the claim settlement ratio for the life insurance industry stands at 97%, but a lot of it is because of LIC’s large base with very high CSR. A lot of private life insurance companies are now ‘matching up’ since the last 4-5 years. However, like we mentioned in the disclaimers above, it may not be an equal comparison. Here’s all the information on CSR that you will need. Let us see which are the best insurance companies on claims ratio. The ranking is based on the size of the company (New Business Premium generated) so that you get that perspective as well.
Total Value of
|LIC||Rs. 3,00,487 crores||Rs. 11,058 crores||Rs. 14.62 lakhs||98%||Details|
|Max Life||Rs. 1,078 crores||Rs. 301 crores||Rs. 3.13 lakhs||98%||Details|
|HDFC Life||Rs. 19,445 crores||Rs. 443 crores||Rs. 3.56 lakhs||98%||Details|
|ICICI Prudential Life||Rs. 22,354 crores||Rs. 547 crores||Rs. 5.19 lakhs||97%||Details|
|Aegon Life||Rs. 450 crores||Rs. 60 crores||Rs. 10.54 lakhs||97%||Details|
|SBI Life||Rs. 21,015 crores||Rs. 560 crores||Rs. 3.28 lakhs||97%||Details|
|Tata AIA Life||Rs. 3,171 crores||Rs. 84 crores||Rs. 3.26 lakhs||96%||Details|
|Exide Life||Rs. 2,408 crores||Rs. 65 crores||Rs. 2.29 lakhs||96%||Details|
|Canara HSBC Life||Rs. 2,294 crores||Rs. 39 crores||Rs. 6.44 lakhs||95%||Details|
|Birla Sunlife||Rs. 5,723 crores||Rs. 299 crores||Rs. 5.23 lakhs||95%||Details|
|Reliance Life||Rs. 4,026 crores||Rs. 213 crores||Rs. 2.03 lakhs||95%||Details|
|Edelweiss Tokio Life||Rs. 441 crores||Rs. 15 crores||Rs. 9.96 lakhs||93%||Details|
|Bajaj Allianz Life||Rs. 6,183 crores||Rs. 425 crores||Rs. 2.85 lakhs||92%||Details|
|Bharti Axa Life||Rs. 1,396 crores||Rs. 45 crores||Rs. 5.59 lakhs||92%||Details|
|Kotak Life||Rs. 5,139 crores||Rs. 112 crores||Rs. 4.36 lakhs||91%||Details|
|DHFL Pramerica||Rs. 1,142 crores||Rs. 17 crores||Rs. 4.19 lakhs||91%||Details|
|Aviva Life||Rs. 1,336 crores||Rs. 104 crores||Rs. 9.23 lakhs||91%||Details|
|Sahara Life||Rs. 153 crores||Rs. 6 crores||Rs. 0.96 lakhs||90%||Details|
|Future Generali Life||Rs. 739 crores||Rs. 32 crores||Rs. 2.67 lakhs||90%||Details|
|IDBI Federal Life||Rs. 1,565 crores||Rs. 49 crores||Rs. 5.13 lakhs||90%||Details|
|PNB Metlife||Rs. 3,236 crores||Rs. 233 crores||Rs. 6.90 lakhs||87%||Details|
|Star Union Dai-ichi Life||Rs. 1,510 crores||Rs. 57 crores||Rs. 4.63 lakhs||84%||Details|
|IndiaFirst Life||Rs. 2,265 crores||Rs. 51 crores||Rs. 3.57 lakhs||83%||Details|
|Shriram Life||Rs. 1,207 crores||Rs. 97 crores||Rs. 5.23 lakhs||64%||Details|
What should you look for in Comparison of Claims Ratios?
Based on the above data on Claims Ratio published in 2015, this is how you should interpret it.
- Claim Settlement Ratio higher than 85% is good. Of course, very high CSR (more than 90%) is welcome if the life insurance company is also offering you a great value product. e.g. LIC, Max Life, Tata AIA Life, ICICI Prulife, Aegon Life, HDFC Life, Reliance Life, SBI Life, Canara HSBC Life, Bajaj Allianz Life, Sahara Life, Exide Life, Kotak Life, Bharti Axa Life, Aviva Life, Birla SunLife, IDBI, Edelwise Tokio and DHFL Pramerica.
- Notice the variance in average value of claim paid. Higher the sales of term insurance (as % of overall portfolio), higher is the average value of claim paid. Also, lower is the CSR if the companies are newer.
Some Disclaimers on Claims Ratio
While claim settlement ratio is recommended as worthy of consideration at the time of buying a term insurance plan, the ratio is only indicative and not 100% perfect for this purpose. The reasons for which we are saying this, are as follows.
- The ratio is for all life insurance products put together and not just term insurance plans. So claim settlement ratio works in favor of life insurance companies with large non-term product customer base since such customers had bought a life insurance policy mainly with the aim of getting returns rather than as a protection tool in case of death.
- Frauds committed by customers cannot be blamed on the life insurance company. In such cases, it is only correct on the company’s part to deny the claim. Over time, when you eliminate fraud, you settle claims for only genuine cases and this can bring down the premiums for customers. So chasing fraudulent claims is indeed in the interest of good customers, even if it is at the cost of claim settlement ratio going down.
- Most of the claim denials happen in the first 2 years after issuance of the insurance policy. In life insurance industry parlance, they are called ‘early claims’. Newer companies will have many more early claims as a % compared to older companies. Claim settlement ratio of newer life insurance companies can come down for this reason.
- Some insurance companies which aggressively sell term insurance plans investigate all the suspicious and most of the large value claims before payout. So they may end up discovering more fraud cases, rejecting them (obviously) but deteriorating their claims ratio. We need to keep this perspective in mind when we look at some of the smaller companies with lower claim settlement ratio.
Having said this, life insurance companies who have managed a high claim settlement ratio in 2016 have indeed done a fabulous job – no denying that.
Final Words on Claims Settlement Ratio when buying Term Insurance
In conclusion, you should definitely use Claim Settlement Ratio when buying a term insurance plan. In addition to that, if you buy a term plan online by filling the application form yourself, and if you declare everything honestly on the form as well as during the medical examination to the doctor, it will make sure that your chances of claim approval are very high indeed.
If you are looking to buy a Term Insurance Plan with a guarantee of getting the claim, these tips can help.