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What is Claim Settlement Ratio of an insurance company and why is it important?

While buying life insurance plans, it is important to consider the Claim Settlement Ratio of the companies.

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Last Updated - December 8, 2022
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Let us start with the exact formula and then go on to understand it better. The Claim Settlement Ratio is a life insurance company for a year is calculated as follows:

Claim Settlement Ratio = Count of Death Claims Paid / Count of Death Claims Received

Things to note here are the following:

  • The ratio is calculated for a year
  • It is the count of claims and not the amount of claim which is used for the calculation
  • Only Death Claims are considered here and not Maturity Claims
  • Claims made by individuals are considered here and does not include those from the Group Business of the life insurance companies

So let’s see how this works out with the help of an example. Let us consider the financial year 2015-2016 for ICICI Prudential. The data is published by IRDAI in its Annual Report.

Count of Individual Death Claims received in the year = 11,034
Count of Individual Death Claims paid in the year = 10,615

So for the year 2015-2016 the Claim Settlement Ratio = 10,615 / 11,034 = 96.2%
Yea well done IPru!

The balance claims would have either been rejected or even pending for various reasons. Mostly, they fall under the rejection bucket though.

Companies often publish their Claim Settlement Ratio on their websites on an ongoing basis as IRDAI does this exercise only once a year in the Annual Report (usually 6 months after the end of the financial year).

While buying life insurance plans, it is important to consider the Claim Settlement Ratio of the companies. After all, claims are the most important reason for taking a life insurance plan, especially when it comes to term insurance.

So here is my take – Any company have a Claim Settlement Ratio > 90% is good for consideration when it comes to buying term insurance plans, the higher the better though.

It is also worthwhile to note that most insurance companies will have a low Claim Settlement Ratio in their earlier years of operation. It is because the overall business in the initial years are low and companies are hungry to grow fast and some poor underwriting does invariably happen.

Click to find the trend of the Claim Settlement Ratio of Life Insurance Companies for the last 5 years.

Even after 10 years of operation if insurance companies don’t have a Claim Settlement Ratio > 90% you might as well skip taking a term insurance plan from them.