Why an insurer's settlement ratio tells only half the story

Insurers must provide clearer metrics, including payout ratios by amount, for deeper insights

- Aprajita Sharma

With 27 general insurers and seven standalone health insurers offering a range of policies, choosing the right one can be challenging for most. Beyond the policy features, the claims experience is also a key factor in selecting an insurer.

Many customers look at the claims settlement ratio or rely on anecdotal stories from acquaintances. However, the claims settlement ratio alone does not give a complete picture. Other data points, especially the claims paid ratio in terms of amount, is the key. "Claims settlement ratios in isolation could present a skewed narrative. For example, if an insurer processes 80 small claims of ₹100 but leaves unresolved 20 larger claims of ₹1 lakh, they might still boast an 80% claims settlement ratio," said Sumit Bohra, president, Insurance Brokers Association of India (IBAI). "This metric fails to account for the proportion of claims paid in terms of the total amount, which could be significantly lower," he added.

Number vs claims amount What does a claims settlement ratio tell you about an insurer? It shows how many claims an insurer has settled in a financial year. If the claims settlement ratio is 95%, it means it settled 95% of claims it received. However, the devil is in the detail. What if an insurer partially paid the claim? It would still be counted as a settled claim. That said, the amount of claims being settled by an insurer is more important. Higher the claim paid ratio, better is an insurance company in terms of the measured ratio.