Source: IRDAI Annual Report, FY22, Public Disclosures of Insurer’s NL-37 Claims Data.
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The claim settlement ratio (CSR) has long been one of the most crucial factors, along with cost, that people consider when selecting a health insurance policy. While CSR provides some insight into an insurer’s claim experience, it only reveals part of the picture.
It’s time to look beyond this metric and evaluate what truly matters when selecting an insurance policy.
Limitations of the Claim Settlement Ratio (CSR)
CSR reflects the number of claims settled as a percentage of total claims received. However, it doesn’t provide insights into critical factors that affect policyholders, such as settlement value, processing time, or overall customer experience. Here’s why CSR alone is insufficient:
1. Value Disparity in Settlements
CSR is calculated based on the number of claims settled, not their monetary value. This can be misleading because insurers may settle numerous low-value claims while rejecting high-value ones.
For example, if Mr. X receives a claim of ₹1 lakh despite being eligible for ₹10 lakhs under the policy, his claim is still counted as ‘settled’ in the CSR calculation. This hides the reality of claim adequacy.
A real-world example: National Insurance’s CSR (by number of claims) in FY22 was 91.61%, but by value, it was only 71.95%.
2. Time Efficiency vs. Settlement Ratio
CSR does not consider how quickly claims are processed. Even if an insurer has a high CSR, delays in settlements can cause significant financial strain during critical times.
For instance, in FY22, IFFCO Tokio General Insurance had a CSR of 94.96%—one of the highest among general insurers. However, it ranked among the lowest in terms of claims paid within three months, standing at 89.38%.
3. Quality of Claims Experience
CSR does not measure customer experience factors like:
- Ease of claim filing
- Customer support responsiveness
- Transparency in claim processing
- Policyholder satisfaction
A Comprehensive Valuation Framework
Instead of relying solely on CSR, a more holistic evaluation framework can provide a clearer picture of an insurer’s reliability.
A. Incurred Claim Ratio (ICR)
ICR measures net claims paid as a percentage of net premiums collected:
- A high ICR (close to 100%) indicates that the insurer is paying out most of its premium revenue, which can be a financial risk.
- A low ICR suggests expensive pricing and low claim payments, potentially meaning denied or underpaid claims.
B. Network Hospitals
A larger network of hospitals offering cashless treatment increases convenience for policyholders. Evaluating the size and spread of an insurer’s hospital network is essential.
C. Claim Settlement Ratio by Amount (Value of Claims Settled)
This ratio measures the total claim amount paid as a percentage of total claims made. A high ratio indicates fair and efficient settlements, whereas a low ratio suggests frequent claim denials or delays.
D. Age Analysis of Claims Paid
This metric evaluates how long insurers take to settle claims. A higher proportion of claims settled within three months indicates a prompt and reliable insurer.
E. Customer Experience and Reviews
Customer feedback and social media reviews provide firsthand insights into an insurer’s service quality and claim settlement transparency.
Final Thoughts
A high claim settlement ratio alone does not guarantee a good insurance policy. Policyholders must assess factors like claim amount settlement, speed of processing, network hospitals, and customer experience before making a decision.
By using a more detailed evaluation framework, individuals can choose insurance policies that truly offer financial protection in times of need.
