Whenever you purchase any product, right from expensive items like vehicles to everyday items like toiletries, one of the first things you look at is its rating. You go through the product’s reviews, the brand’s ratings, and also talk to other people about their experience with the brand. If you find that the product has a high customer rating and hear positive feedback about it, you feel confident in making the purchase.
So, why not do the same with an important financial decision like Health Insurance? You can assess the credibility and trustworthiness of an insurer by looking at their claim settlement ratio. This metric gives you insights into the probability of your claim being paid out by the insurer.
What does Claim Settlement Ratio exactly mean? How do you calculate it? Let’s discuss - in this article.
Health Insurance Claim Settlement Ratio
The end goal of any health insurance policy, especially for the customer, is receiving the claim amount when they need it. You can measure the claim-settling ability of an insurance company by looking at its health insurance claim settlement ratio.
The health insurance claim settlement ratio is basically a metric that calculates the ratio of the total claims settled to the total number of claims received by an insurance company in a given financial year.
You can check the claim settlement ratio of any insurance company on the company’s website or in the annual report released by IRDAI.
To calculate the Claim Settlement Ratio of any insurance company, a simple formula is used -
Claim Settlement Ratio = (Number of claims settled) / (Number of claims received + Outstanding claims at the beginning of the year) X 100
Let’s understand this better with an example. Say an insurance company received 50 claims during the fiscal year 2022 and they had 10 outstanding claims at the beginning of the year. Out of these, they settled 51 claims.
In such a case, the claim settlement ratio will be = 51/ (50+10) x 100
= 51/60 x 100
= 85%
This means the insurance company has a Claim Settlement Ratio of 85%.
How Does the Claim Settlement Ratio Help You?
The Claim Settlement Ratio is a crucial element to check the credibility of an insurance company in terms of settling claims. If the Claim Settlement Ratio of an insurance company is high, it means a greater number of claims have been settled by it. For example, an insurance company with a claim settlement ratio between 95% and 97% is more reliable than a company with a lesser ratio.
So, choosing an insurance company with a higher Claim Settlement Ratio will increase the chances of your claim being honoured in the future.
Health Insurance Claim Ratio - Types
| Type |
Meaning |
Formula |
Example |
| Claims Repudiation Ratio |
The percentage of claims rejected by an insurance company is referred to as the Claims Repudiation Ratio or Claim Rejection Ratio.
|
Total number of claims rejected in a year/Total number of claims received in a year x 100
|
An insurance company received a total of 150 claims in a financial year. It settled 120 claims and rejected the remaining 30 claims. In this case, the Claim Repudiation ratio of the insurance company will be -
Claim Repudiation Ratio = Total claims rejected in a year/Total claims received in a year x 100
= 30/150 x 100 = 20%
|
| Claims Incurred Ratio |
Claims Incurred Ratio is the ratio of net claims settled by an insurance company to the net premiums collected during a fiscal year. It is essentially a comparison between the money received as premiums and spent on claims by the insurer in a financial year.
|
Net claims settled/Net premiums collected x 100
|
An insurance company collected Rs. 5 Lakhs in premiums out of which it spent 4 Lakhs to settle the claims in a financial year. So, its Claim Incurred Ratio will be -
Claim Incurred Ratio = Net claims settled/Net premiums collected x 100
= 4 Lakhs / 5 Lakhs x 100 = 80%
|
| Claim Pending Ratio |
The percentage of pending or outstanding claims with the insurance company is calculated using Claim Pending Ratio.
|
Total number of pending claims/Total number of claims received x 100
|
For example, say an insurance company received 80 claims in a year out of which 20 claims remain pending. So, its Claim Pending Ratio will be -
Claim Pending Ratio = Total number of pending claims / Total number of claims received x 100
= 20/80 x 100 = 25%
|
Advantages of Good Claim Settlement Ratio
To make an informed decision while buying health insurance, it is crucial to analyse the Claim Settlement Ratio of an insurance company. It is one of the most dependable points of assessment.
An insurance company with a higher Claim Settlement Ratio shows that it's more credible, trustworthy, and financially sound. You can rely on them without being worried about whether your claim will be executed in the future, after investing your money in the plan.
The advantages of having a higher Claim Settlement Ratio are -
-
Greater Reliability
The higher the Claim Settlement Ratio of any insurance company, the higher the claims it settles in a fiscal year. This is a sort of ‘stamp of approval’ for the company’s ability to provide financial support in times of adversity.
-
Hassle-Free Services
An insurance company with a good Claim Settlement Ratio ensures that you can avail of the claim in a quick and trouble-free manner.
-
Commitment To You!
Any insurance company with a higher Claim Settlement Ratio also shows its commitment to serving its customers during financial emergencies and protecting them.
Conclusion
The claim settlement ratio is a good indicator of an insurance company’s reliability - in times of need. A company with a higher claim settlement ratio is considered a good choice as it lessens the chances of your claim getting rejected. So, it’s wise to compare the health insurance claim settlement ratios of various insurance companies before purchasing a plan.
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