Sunday 6 December 2015

Faultlines – Claim Settlement Ratio

Claim settlement is one of the most important services that an insurance company can provide to its customers. Insurance companies have an obligation to settle claims promptly. For instance, if a life insurance company receives 1000 death claims and settles 980, the claim settlement ratio of that company would be 98%.

The very purpose of insurance will be defeated if the claim is not provided for when required. This assumes all the more relevance when the beneficiaries are dependent on the insurance proceeds. In such a situation, a claim being denied will be a huge financial setback.

The fault in Statistics

The oldies in the insurance market get undue advantage while calculating claim settlement ratio. In year 2013- 14, the promising entrant in the Indian insurance market Edelweiss Tokio Insurance rejected just 10 claims according to IRDA data. In the same financial year, Life Insurance Corporation of India rejected 17000 plus claims. But still, claim ratio of LIC is high because of higher sample size.

The ratio declared is the sum total of all claims honoured by the company for all its life insurance policies and products. So what we see is the average and not the exact ratio for each type of policy -- term insurance, endowment cover, money back policy, child plan, online plan or offline, group insurance or individual cover, and so on and so forth.

Also, what we see is the figure in percentage terms, not the actual number. So it is not clear how many claims the company actually rejected.

Let's say an insurance company rejects 100 out of 1,000 claims, giving it a claim settlement ratio of 90 per cent. The next year it gets 10,000 claims but rejects 500. Its claim settlement ratio goes up to 95 per cent but it has rejected more claims.

A claim within a year or two of taking the policy calls for a detailed investigation. If there are many such claims, then it would affect the claim settlement ratio.

Also, if the sum assured is very high, then the insured undergoes varies medical check-ups before the insurance policy is issued. So these claims are processed faster giving no reason why the claim should be repudiated.

It could also be the case where policy holders have held back facts. Misstated, incorrect and insufficient data provided by individuals at the time of buying the policy could lead to claims being rejected. This is no fault of the company.

It is advised to buyers that they should consider claim settlement ratio over the number of years before making the decision to buy. 

- Chaitanya Kulkarni ( )

-         Note – The Article is sponsored by Edelweiss Tokio 


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