Why Claim Settlement Ratio isn’t the best way to compare term insurance policies?

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Due to the abundance of insurance options available in the market, many customers ignore the simple options when it comes to insurance. Being the simplest type of life coverage option, term insurance provides life insurance to the policyholder and provides financial protection to their family. The idea behind the product is to protect the policyholder and their family against the possibility of sudden death or disability of the policyholder. It is meant to ensure that the family is healthy and safe even when the policyholder is absent or incapable of supporting them.

It is important to understand the basics of this type of coverage before deciding to make the purchase for a purchasing term insurance policy. Knowing the term insurance meaning, benefits, and functionality will ensure that you make a wise decision at the time of purchase.

What is Claim Settlement Ratio?

When you start exploring term life insurance options, you will find that term insurance claim settlement ratio is something that is present in every aspect of insurance. It is often said to be an indicator of a better claim experience. This, in turn, supposedly makes the policy and the insurance company a better fit for you. However, is this assumption correct? What does the claim settlement ratio actually represent?c

The Claim Settlement Ratio (CSR) basically measures the number of claims paid by the insurance company with the number of claims made by the nominees / beneficiaries. It is expressed as a percentage and published in each financial year.

For example, if an insurer has a claim settlement ratio of about 95 percent, it means that the company has settled 95 claims for every 100 claims received.

Why comparing claim settlement ratio is not too effective?

  • It does not reflect likelihood of claim settlement 

This ratio does not give you any accurate idea of your chances of getting your claim settled. It only tells you about claims that have been settled by a company in the past. A high claim settlement ratio does not mean that your claim will be settled. Similarly, a low ratio does not mean that your claim will not be settled. Hence, all it shows you is how often does the insurance company settle the claims that it receives. 

  • Does not reflect the value of claims 

The claim settlement ratio will tell how many claims they have settled out of the ones received. However, it does not talk about the value of claims settled. The value of claims is essentially the amount of money given towards claim settlements. Some insurers can have a very high claim settlement ratio, but do not have a good claim settlement ratio in regard to value of claim. This means that the insurer may have settled a number of very low value claims and rejected high value claims. The claim settlement ratio that you receive from the insurance provider does not account for the value of the claims. 

  • Does not reflect the claims service 

The claim settlement ratio does not reflect the quality of experience you would have with the company’s claims process. This includes factors like the time it takes to settle claims, the support you receive from the insurance provider, etc.

Let’s assume that an insurance provider has a 99 percent ratio and takes an average of 30 days to settle a claim, while another company has a 98.5 percent ratio and the average time taken is seven days. Which insurance company would you prefer to make a claim with?

Buying from a high ratio insurer does not necessarily mean that the claims procedure will not be time-consuming and complicated.

All of the above points prove that while a claim settlement ratio is a useful piece of data, it cannot be the basis of your term insurance purchase

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