Decoding the claims paid ratio - the key to a good life insurance policy

By AAN team | 02 Aug 2021

Image: Max Life Insurance, director and chief marketing officer, Aalok Bhan

When purchasing a life insurance policy, it is often advised to check and compare the 'claims paid ratio' of life insurers to determine if the policy and insurer are a right fit for you and your needs. The ratio has become a reliable norm across the industry that is mandated by the IRDAI. But what exactly is the claims paid ratio and what makes it such a crucial element to consider when buying life insurance? I've answered some common questions that arise.

What is the claims paid ratio and why does it matter?

As we know, the pure purpose of life insurance is to provide financial support to the insured’s loved ones during uncertain situations. This is where a claims paid ratio comes into play. Claims paid ratio is a measure of the total number of claims paid by a life insurer versus the claims it has received. By giving you an indication of the number of claims that the insurer has paid following the death of policyholders, the claims paid ratio helps reassure you of the kind of security you can expect from the life insurer, should the eventuality arise. The higher the claims paid ratio of a life insurance company, the greater are the chances of your future claim being settled by it.

The claims paid ratio is a crucial indicator of the credibility of the insurance company. The same also helps assess the efficiency with which an insurer pays out a claim. It represents strong internal claims settlement processes and underwriting and provides customers the reassurance that if ever time comes, an insurer will be able to provide timely claims settlement to the customer. For comparative purposes, a life insurer with ratio of more than 98% is considered a reliable company. Some insurers even have claims paid ratios of over 99%, indicating that they almost always fulfil their promise to the customer.

How is it calculated?

A claims paid ratio is simply calculated by dividing the number of claims settled by an insurer with the number of life insurance claims it receives. As an example, let us say a life insurer receives 10,000 claims throughout the financial year, of which it settles 9,930. In this scenario, an organisation would have a claims paid ratio of 99.3% (calculated as 9930/10000) x100) for the financial year. Keep in mind that a claims paid ratio is calculated cumulatively for the entire product range of a company that includes term policies, endowments, ULIPs and riders, among others.

What is the process of claims settlement?

Often, the process of claims settlement consists of three steps. These are:

Filing of the claim: It is recommended to first inform your insurer of the unfortunate incident as soon as it occurs. This is followed by filing a death claim online or through WhatsApp during these times or even through email. Create a checklist of documents and ensure all supporting bills and certificates are shared with the insurer.
Evaluating the claim: Once the supporting documents are shared, insurers will utilise the same to evaluate and verify it at their end.
The decision: Post-due assessment and checks of the information, an insurer is ideally expected to settle valid claims within 30 days of receiving all details. In some cases that require further evaluations. The time period to share a final decision on the approval or rejection of the claim may take up to 120 days. Most insurers also attribute ‘claims relationship officers’ that can make this entire process more seamless for customers.

In what situations can claims be rejected?

If a claims form has accurate and explicit information, the rate of claims denial decreases. However, an insurer has grounds to reject claims basis the following circumstances:

Missing, incorrect or fraudulent information: In any case that an insurer doesn’t receive accurate details about important information or is misled with fraudulent statements, it may result in a rejection of the claim.
Inaccurate medical history: Concealing information about one’s health can also lead to rejection. Information such as past surgeries, whether one is a smoker or not, operations, etc. are critical to life insurers during the policy issuance stage as it impacts the premium paid. If such information was withheld, it can result in an insurer disapproving a claim.
Untimely premium payments: Inconsistency in the payment of premiums can result in inactive life insurance policies, for which benefits may not be availed. Typically, insurers offer a 15-day grace period for monthly premiums. Inability to pay these can result in lapses. It is worthwhile to check in every few months with your insurer on your policy.

The claims paid ratio has been established as one of the hallmarks of an insurer’s commitment to its customer, but it’s also a claimant’s responsibility to follow procedures, disclose accurate information and provide the documents required by the insurer for settling a claim. With these simple steps, one can ensure their loved ones are looked after in any unfortunate events or demise.

Image: Aalok Bhan

Aalok Bhan is director and chief marketing officer at Max Life Insurance and is a doyen with longstanding experience in his domain. He oversees operations synergising the company’s product, branding and corporate communication strategies advancing leadership towards strengthening customer-oriented product design strategies, brand positioning, building a sizeable protection business as well as managing all corporate and internal communications.