Do high claim settlement ratios guarantee claim payment?

Claim settlement ratio in the case of life insurance refers to the number of claims that the insurer has paid following the death of policyholders. Thus, if a life insurer has a claims settlement ratio of 60 percent, it means that the insurer pays 60 out of every 100 claims filed when the policyholder dies.

September 08, 2014 / 10:37 IST

Deepak Yohannan

31-year-old Sudeshna Guha wants to buy a life insurance policy this year. The mother of two wants to ensure financial security for her children in the event of her untimely demise. Sudeshna is researching policies extensively to make sure that when claim settlement time comes, her beneficiaries face no unnecessary hurdles. Hence, one of the factors on which she is focussing is the life insurer’s claim settlement ratio.

Defining claim settlement ratioThe term is self-explanatory. Claim settlement ratio in the case of life insurance refers to the number of claims that the insurer has paid following the death of policyholders. Thus, if a life insurer has a claims settlement ratio of 60 percent, it means that the insurer pays (“settles”) 60 out of every 100 claims filed when the policyholder dies. It follows that a company with a high claim settlement ratio is always the better option because the probability that this company will settle your claims is much higher.No guarantees hereHowever, a high probability is not a guarantee. For instance, the 2011-12 annual report of the Insurance Regulatory and Development Authority (IRDA) listed the claim settlement ratio of the Life Insurance Corporation (LIC) at 97.42 percent. This means that if Sudeshna buys her policy from LIC, she has a far greater chance of claim settlement. Nevertheless, 97.42 percent is not 100 percent, which means that some people do fall through the cracks. No matter how efficient the insurer is in claim settlement, some claims will be rejected.

Ensuring settlement, avoiding rejectionSo how can a policy buyer like Sudeshna ensure that her claim is not rejected? It all begins at the policy issuance stage—that is when the insurer assesses the risk presented by the policyholder and underwrites the policy on that basis. The steps listed below are crucial if policy buyers like Sudeshna hope to ensure seamless claim settlement.

1. The policy buyer should make full disclosure – If a policy buyer neglects or forgets to mention material information (such as her smoking habits or a previous medical condition), it could affect the risk assessment. If this information comes to the notice of the insurer later, the claim could be rejected. 2. The policy buyer should fill out the Form on her own – Many policy buyers allow the insurance agent or sales personnel to fill out their insurance form. Such a third party may not be aware of the policy buyer’s personal details and could end up not mentioning crucial information.3. The policy buyer should use the free-look period – Once the policy contract is signed, the policy buyer has a 15-day period during which to scan the policy bond for errors, omissions and unsatisfactory terms. The dissatisfied policy buyer thus has a 15-day window during which she can return the policy.4. Nominees should follow the required claim filing process – The policy buyer should also inform nominees about the procedure and documentation involved in filing a claim. When the filing process is followed correctly, claim settlement is quicker.