The primary aim of buying a life insurance plan is to ensure financial security for the members of a family in case of the death of the breadwinner. A life insurance plan is calculated on the basis of future goals, inflation and other day-to-day requirements. Life insurance helps fulfil commitments through sufficient availability of funds despite any casualty.
The Insurance Regulatory and Development Authority of India has notified the death claim settlement ratio of life insurers for the year 2020-21.
What is a claim settlement ratio?
The insured’s family must get the sum assured as it can be a make-or-break situation for them considering the fact that the family will depend on this money in the future.
Naval Goel, founder & CEO, PolicyX.com said the claim settlement ratio is historical data that translates the company’s ability to honor the claim. On the basis of the insurance company’s history, the insured can predict the future of the claim, whether it will be honored or not. “The higher claim settlement ratio depicts the credibility by showcasing that the insurance company has successfully settled a majority of claims raised by their customers. And low claim settlement ratio showcases the inability of an insurance company as the insurance company hasn’t successfully settled claims.,” Goel said.
The higher claim settlement ratio is proportionate to the higher chances of claim settlement as the company.
How is it calculated?
The claim settlement ratio is calculated by dividing the total number of claims settled by the total number of death claims volume.
Formula- Claim Settlement Ratio (CSR) = (Total number of claims settled in a year/ total number of claims in a year) X 100
According to the Irdai annual report 2020-21, the claim settlement ratio of LIC was 98.62% as of March 31, 2021 compared to 96.69% as of March 31, 2020 and the proportion of claims repudiated/rejected has decreased to 1.0% in 2020-21 from 1.09% in the previous year.
Goel said, “The claim settlement ratio of private insurers was 97.02% during 2020-21 (97.18% during 2019-20) and the proportion of repudiations came down to 2.0% in the year 2020-21 from 2.50% in the previous year. The life insurance industry’s settlement ratio increased to 98.39% in 2020-21 from 96.76% in 2019-20 and the repudiation/rejection ratio decreased to 1.14% from 1.28% in 2019-20.”
The below table shows the death claim settlement ratio of life insurers for 2020-21:
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