As a result of the Covid-19 outbreak in 2020-2021, insurers’ propensity to approve the insurance claims perhaps declined — or at least it appears so — leading to a lower claims settlement ratio.
Sample this, the total claims settlement ratio of Life Insurance Corporation (LIC) was 84.41 percent for six months ending September 30, 2021, as shown in the draft offer documents filed with Securities Exchange Board of India (SEBI) ahead of its IPO.
In fact, this trend started to appear a year earlier when the pandemic started, as the IRDAI report shows. “The year was affected with COVID-19 pandemic. The general insurers and standalone health insurers received over more than 9.5 lakh COVID-treatment related claims. However, the general insurers helped to settle about 90 per cent of the reported claims,” states the IRDAI report for fiscal 2021.
What is claim settlement ratio?
The claim settlement ratio is the percentage of claims which an insurance provider settles in one year out of the total number of claims. It shows the insurer’s credibility. As a rule of thumb, the higher the ratio, the more credible the insurer is believed to be.
In fact, this ratio is an important factor to consider while buying the insurance policy.
Coming back to the LIC, claim settlement ratio for the six months mentioned above was found to be lower in case of market-linked insurance products as compared to non-market linked insurance products.
For instance, during the period (April 1- Sept 30, 2021), this ratio was 27.20 percent for pension products; for health products, this ratio was 53.87 percent and for life insurance products, it was 84.47 percent.
Claim settlement ratios of LIC vis-à-vis private insurers in 2020-21
|Insurer||Claims paid (%)||Claims repudiated (%)|
|Aditya Birla Sun Life||98.04||1.79|
(Source: IRDAI Report 2020-21)
On the other hand, the claim settlements ratio for non-linked products was a tad higher. The ratio was 58.17 percent for health insurance plans, 78.16 percent for annuity plans and 91.77 for the pension plans offered by IPO-bound state insurer.
According to the IRDAI (Insurance Regulatory Development Authority of India) report for 2020-21, claim settlement ratio of LIC was 98.62 percent as at March 31, 2021 as compared to 96.69 percent a year before i.e., in fiscal 2020
Claim settlement ratio for past two years
|Insurer||2020-21 (%)||2019-20 (%)|
On the other hand, claim settlement ratio of private insurers was 97.02 percent during 2020-21 as compared to 97.18 percent a year before.
In case of group life insurance business, the settlement ratio was 98.62 percent wherein LIC paid 96.80 percent of the claims and the private life insurers paid 99.08 percent of the claims, the IRDAI report states.