Numbers that help when buying general insurance

There are many critical parameters like claims settlement, repudiation and others that need to be studied carefully

If you were to buy a health insurance, which company would you choose — a company that has settled just 24 per cent of the claims it has received or one that has settled 97 per cent of them?  Ideally, it should be the one that has settled 97 per cent. But most consumers tend to get stuck with premium, or, at best, features of the policy. “Before buying a policy, an individual should first shortlist insurers that settle more claims than others and quickly. Features of a policy and premium should be the next step,” says Sanjay Kedia, chief executive officer at Marsh India Insurance Brokers and also president of the Insurance Brokers Association India (IBAI). To evaluate the company, an individual should look at the following ratios: The claims settlement ratio, claims repudiation ratio, claims outstanding ratio, claims settlement efficiency ratio, and claims pendency ratio.

Recently, the IBAI consolidated all these and published a report ranking insurers. To get the latest data, you can also visit the insurance company’s website. The insurance regulator, the Insurance Regulatory and Development Authority of India, has made it compulsory for all insurers to declare these.

Using these parameters can help you narrow the choice of insurers. “Don’t rely on them entirely as they have shortcomings," says Nikhil Apte, chief product officer, Royal Sundaram General Insurance. These are based on the number of claims and not the value. They do not distinguish between claims of Rs 50,000 and Rs 5 lakh. It means these ratios cannot capture claims where the insurer paid only a percentage of what has been claimed by the insured. Also, the data include group as well as individual policies. Insurers tend to settle claims in group policies quicker than in individual plans, according to brokers.

Before buying an insurance plan, look at companies with the best claims settlement ratio, which is the claims settled by the insurer compared to the total claims it received. “It’s best to avoid companies that have a low claims ratio,” SK Jain, vice-president, Embee Insurance Brokers. He suggests going for companies that have consistently maintained a claims settlement ratio of 75-80 per cent or more for two-three years.

 

Then look at the claims repudiation ratio, which gives an idea of the claims an insurer has denied. The lower the number, the better it is. Among the government-owned general insurance companies, for example, The New India Assurance Company has a higher claims settlement ratio (84 per cent) and also the lowest claims repudiation ratio (approximately 2 per cent).

To get a clearer picture, look at the claims outstanding ratio. It will tell you how many claims of those available for processing are outstanding. Again, the lower the number, the better it is. The New India Assurance Company again has the lowest claims outstanding ratio of 14 per cent among public sector companies.

A customer can use these three parameters to shortlist his or her insurer and further refine it by looking at how fast an insurer settles claims (claims settlement efficiency ratio) and claims that it has kept pending for more than a year (claims pendency ratio).

“When it comes to motor insurance, if you own a private car, evaluate the company based on the data available for own damage. Look at the third-party claims settlement if you have a commercial vehicle,” says Kedia.