Looking to buy insurance plans but not sure how to select them? Don’t fret. We have, here, four key ratios that would make your life easier, and of course, enable you to make the best possible insurance plan selection.
1. Claim Settlement Ratio
Claim Settlement Ratio gives us an idea about the claim solving ability of the insurance company. If claims are intimated and the insurance company solves those, claim settlement ratio would be good. In simple words – claim settlement ratio is the number of claims settled by the insurance company out of every 100 claims it has received.
How the Claim Settlement Ratio is calculated?
The Claim Settlement Ratio is the ratio of the number of claims paid by insurers to the total number of claims received
Claim Settlement Ratio (CSR) = Total Claims Settled / [(Total Claims) – (Claims Rejected)] %
Example – If an insurance company has received 100 claims in a year and it has settled 68 claims out of it, then the claim settlement ratio will be 68%.
What we need to check in CSR?
Higher claim settlement ratio implies that majority of claims are getting solved. Higher is the claim settlement ratio for the company, the better the company.
2. Claim Repudiation Ratio
A repudiation ratio is a measure of claims rejected by the insurance company. Claim repudiation ratio gives us an idea about the percentage of the claims rejected by the insurer to total claims made. In simple words – Claim repudiation ratio is the number of claims rejected by the insurance company out of every 100 claims it has received.
How the Claim Repudiation Ratio is calculated?
Claims Repudiation Ratio (CRR) = (Claims Rejected / Total Claims) %
Example – Claim repudiation ratio of 15% means 15 cases out of 100 cases have been rejected.
What we need to check in CRR?
The lower this ratio, the higher the settlement of claims. So lower the CRR, better for proposer. But sometimes it won’t give clear idea because the reasons for rejection could be false claims, untimely intimation, coverage not covered under the policy etc. The reasons for rejection could be false claims, untimely intimation, coverage not covered under the policy etc.
3. Claim Pending Ratio
Claims Pending Ratio or Outstanding Claims Ratio is the number of outstanding claims by the total claims made. It indicates the percentage of outstanding cases. Claims pending ratio of 35% means that 35 cases out of 100 are still waiting to be settled.
‘Outstanding Claims Ratio’ is the ratio of number of claims pending for settlement at the end of the financial year vis-à-vis the total number of claims intimated to the company in the same financial year plus claims outstanding at the beginning of the Financial Year. In life insurance industry, an outstanding claims ratio is inevitable. The real test of an insurance company lies in keeping it to the lowest minimum possible by having the right processes in place, enabling early submission of claim requirements and deciding on the claims swiftly.
But at times it does not show the correct picture, where claims remain unpaid, we have observed that it is on account of certain vital information pertaining to his/ her medical and/or financial status, which the Client had not shared with the Insurer at the time of issuing policies.
How the Claim Pending Ratio is calculated?
Claims Pending Ratio (CPR) = (Claims Outstanding / Total Claims) %
Example – Claims pending ratio of 40% would mean 40 claims out of 100 are yet to be solved.
What we need to check in CPR?
Claims pending ratio tells us about the outstanding claims that have not been settled either way- neither accepted nor rejected.
4. Solvency Ratio
The solvency of an insurance company corresponds to its ability to pay claims. The Solvency ratio is a way investors can measure the company’s ability to meet its long term obligations.
How Solvency Ratio is calculated?
Solvency Ratio = (After Tax Profits + Depreciation) / (Long Term Liabilities + Short Term Liabilities) %
What is the minimum Solvency Ratio requirement (as per IRDA)?
1- Life Insurers – the Required Solvency Margin is the higher of an amount of Rs.50 crore (Rs.100 crore in the case of Re-insurers) or a sum which is based on a formula given in the Act / Regulation.
2- General Insurers – the Required Solvency Margin shall be the maximum of the following amounts –
a) Fifty crore of rupees (one hundred crore of rupees in the case of Re-insurer) ; or
b) A sum equivalent to twenty per cent of net premium income; or
c) A sum equivalent to thirty per cent of net incurred claims, subject to credit for re-insurance in computing net premiums and net incurred claims being actual but a percentage, determined by the regulations, not exceeding fifty per cent.
If the insurer miss the above solvency margin?
The insurance companies may have to inject additional capital to maintain the regulatory requirements if they won’t maintain solvency margins.
What we need to check in solvency ratio?
The higher the ratio is the better equipped a company is to pay off its debts and survive in the long term. In general a ratio of 20% or higher is considered to be a good ratio where as a ratio of 20% or lower is considered to be a bad ratio. As most ratios should be compared with other companies in the same industry group.