Term insurance claim settlement ratio: how it affects your policy choice

Claim settlement ratio, or CSR, is a crucial metric that helps existing policyholders and potential customers gauge the authenticity and reliability of the insurance provider. The measure of CSR highlights the percentage of claims settled by the insurance provider among the total number of claims raised during a specific period, usually one year. 

When you are purchasing term life insurance, it is evident that you are aware that it is a relatively big investment. Before zeroing in on any particular plan, you must ensure the trustworthiness of your chosen insurer. CSR plays a significant role in this respect.

This article will shed light on the aspects of how term insurance claim settlement ratio matters. 

What is the claim settlement ratio?

When a policyholder passes away, an insurance claim is raised. Every insurance provider follows certain typical protocols before a claim settlement, based on which they decide whether to approve or reject the claim. The CSR determines the number of claims settled against the total number of claims raised. 

The formula for the claim settlement ratio

The formula followed to determine the term insurance claim settlement ratio is as follows:

CSR = total number of term insurance claims settled / total number of insurance claims raised

Why is CSR so important?

Before you purchase a term insurance plan, or any insurance plan for that matter, you need to consider several factors like premium amount, coverage span, inclusions & exclusions, customer reviews, etc. In this list, you must also include the CSR to ensure the trustworthiness and genuineness of your chosen insurer. This is a significant determinant of the quality of their service. Some of the significant importance of CSR include the following: 

1. Justify the reliability of the insurer:
   Purchasing a term insurance policy is a significant investment. You need to pay a considerable premium amount for a significant period to avail of the policy benefits. But, if your insurance claim gets rejected for any reason, it will be a huge financial loss. So, before finalising, you need to ensure that your investment is safe. In this context, CSR plays a significant role. A favourable CSR determines indicates that your chosen insurer is right for you.
   
2. Assures the financial future of your dependent(s):
   The primary motive for purchasing a term plan is to ensure the financial security of your family despite your absence. Therefore, it is all the more important to justify if your investment is wise and worthy. The CSR reviews and reports reveal a lot in this context.
   
3. Market reputation: 
   Insurance companies that maintain a consistently high CSR enjoy a comparatively higher market reputation. This enhances their competitive edge and attracts more number of customers.
   
4. Regulatory compliance: 
   Maintaining a competitive CSR often requires regulatory compliance, ensuring that it adheres to industry standards. 

What to search for in CSR?

CSR is an important determinant when buying a term plan or any insurance whatsoever. But, CSR itself needs a detailed look to grasp the concept well before finalising your investment:

1. The ideal percentage of CSR:
   When researching CSR statistics, you must note that 100% CSR is almost next to impossible. The higher this ratio is, the better. If the CSR is 85% or more, you can opt for it, provided all the other aspects are in favour. However, you must research among different insurance companies and go for the one with the optimum ratio, which can be 90% - 95% or even higher.
   
2. Persistence ratio:
   This is another important factor in determining the overall performance of a chosen insurance company. This depicts the persistence of the existing policyholders in renewing their plans. It depicts the trustworthiness of the policyholders, especially on their long-term products and the overall quality of customer service. 

Notable factors

Certain notable factors while considering the term insurance claim settlement ratio include the following: 

1. Inclusions:
   The claim settlement ratio is not only prevalent for term plans. It is a major determinant in almost all sorts of insurance products including health insurance, vehicle insurance, life insurance, etc.
   
2. Fraudulent activities:
   Several fraudsters try to take unfair advantage of insurance companies and raise fake claims. To prevent such fraudulent activities, insurance companies need to eliminate such claims after careful investigation. This may affect the CSR by reducing it to a certain extent. But, for this, the insurer cannot be blamed. Therefore, you must not be too judgemental too quickly. Take time to research and then finalise. 

Conclusion

CSR is a major determinant not only for the customers but for the insurance providers too. It ensures enhanced customer satisfaction, enhanced sales, reduced legal issues, and proves brand loyalty. Some of the chief CSR practices in the insurance sector include effortless claim processing and settlement, transparent communication, customer education, and strong verification processes. 

Despite challenges like fraudulent claims and other regulatory alterations, successful CSR demonstrates the insurer's commitment towards optimum customer satisfaction, ensuring optimum financial protection.