The Claim Settlement Ratio: How to Interpret It

Claims Settlement Ratio is a key measure used to assess an insurer's reliability. Simply put, it is the percentage of claims settled out of the total number of claims received in a year.

A high Claims Settlement ratio demonstrates a brand's commitment to honouring claims, which in turn builds consumer confidence. A company's claim settlement ratio can give consumers an idea of how willing it is to pay valid claims, but it should not be taken at face value. The reason for this is that the Claim Settlement ratio may temporarily be skewed due to the volume of claims, factors beyond the insurer's control, and long claim pending periods. It is possible for an insurer to record a higher claim settlement ratio during a particular quarter than it did during the previous period.

One of the major factors that drive a claim settlement ratio is disclosing all material facts about the Insured’s health, past Insurance cover, and details on Occupation and income in the proposal form while availing of the cover. Material disclosure leads to an informed underwriting decision and a hassle-free and faster processing of claims.

Tata AIA's Executive Vice President and Head of Operations, Sanjay Arora, offers an interesting perspective on the claim settlement ratio. “Claim settlement ratio is also viewed basis of Claims Value. It is imperative to note that the claim value may look distorted if any high-value claim gets repudiated due to non-disclosure of material facts by the Insured. Hence this, in isolation is not the right metric to be referred to.

Hence, the annual claim settlement ratio is the key metric to be considered. Consumers should additionally focus on how the company has performed over time, for example, the last five years on the claim settlement ratio. This will reveal how consistently a high level of claim settlement has been maintained,” Mr. Arora added.

Persistency ratio is another key metric, that consumers should consider while choosing a life insurer. This ratio measures the percentage of people who renew their life insurance policy annually, reposing their trust in the brand.

One of the key Persistency metrics is the 13th Month Persistency ratio or the percentage of consumers renewing their policies one year after buying them. This is most important since unsatisfied consumers are unlikely to renew their policies. Further, one should evaluate the insurer on other periods including the 25^th, 37^th, 49^th, and 61^st month, thereby gauging the quality of service and support over a longer period.

According to Mr. Arora, “A life insurance policy offers long-term assurance that the life cover will remain active for the duration of the policy.  High Persistency Ratios indicate that an insurance company cares about its customers' financial future. As a result, consumers should also look at how a company performs on the persistency front, along with checking its claim settlement ratio record."

To ensure maximum consumer satisfaction, life insurers strive to provide the best-in-class consumer experience. Since Net Promoter Score (NPS) is the gold standard of customer experience metrics, the industry has put considerable effort into improving the NPS. Tata AIA, for example, has implemented an NPS study that maps 18 aspects of consumer experience to implement consumer feedback rigorously. As a result of this initiative, the NPS of Tata AIA improved to 80 in FY24

For FY24, Tata AIA also delivered a very impressive Claim settlement performance. The Individual Death Claim Settlement ratio for FY24 improved to 99.13% from 99.01% in the last fiscal year. During the financial year, the Company settled claims valued at INR 1086.15 crores, benefiting 5499 consumers. As of FY24, 424.62 crore of total claims amounts were settled within 24 hours, ensuring consumers received their claims amount the following day.

Tata AIA's Individual Death Claim ratio has steadily increased over the past few years:

As for the other key business metric, Tata AIA performed very well. For FY24, Tata AIA ranked #1 in 4 out of 5 cohorts of Persistency, across different renewal cycles i.e. from the 13th month to the 61st month, on a premium basis.