If you want to measure an insurer’s reputation, you should look at the key ratios of a company. The higher the claim settlement ratio, the greater are the chances of you getting a claim when you need it.
According to the Economic Survey 2022-23, insurance penetration in India has consistently increased from 2.7% in 2000 to 3.2% in 2021. India has been one of the world's fastest growing insurance markets, expanding about twice as fast as emerging markets and slightly faster than the global average.
The last decade has produced constant exponential growth in the sector, benefiting the policy buyers and giving them an abundance of options at competitive prices. If you are looking to buy a life insurance policy in 2023, chances are that you need some help in choosing the policy. But what about the insurer?
Considering the vast array of life insurance companies in India , deciding from so many options can be tricky. This decision can be especially daunting for new policy buyers looking to purchase their first life insurance policy. Thus, to help smoothen the decision-making process for selecting an insurer, we will be delving into five ratios in this article. These ratios will equip you with the information needed to make a well-informed choice when selecting the most suitable life insurance provider for your needs.
The persistence ratio is the ratio of life insurance policies that received timely premium payments during a given year to the number of net active policies. The ratio reveals how many policyholders paid their insurance premiums on time in that year.
Essentially, this figure provides a snapshot of the duration for which policyholders remain attached to their insurance coverage. Consequently, it can be viewed as an indicator of the overall satisfaction of the company's clientele. To put it simply, examining the reasons behind discontinuing premium payments can offer an idea about the insurer.
The financial stability of an insurance provider is gauged by its solvency ratio. An insurance company's solvency ratio is the size of its capital in relation to the risk it takes on as part of its business. Simply explained, the solvency ratio compares the amount of assets an insurance firm has to the amount it owes. This is a crucial metric when selecting an insurance provider. Here’s why:
When securing life insurance coverage, the insurer promises to disburse a predetermined amount to your designated beneficiary (nominee) in case of an unforeseen incident. Consider instances such as natural calamities like earthquakes, floods, and tsunamis. Following such events, the insurance company may face more claims than anticipated. In such scenarios, the insurer's ability to fulfil claims hinges on its financial stability and economic capacity.
Thus, evaluating the current solvency ratio of insurance companies is crucial as it offers insights into their financial status. A higher ratio suggests that the company is financially robust and possesses adequate resources to settle valid insurance claims.
The Combined Ratio calculates the aggregate sum of money that exits an insurance company in the form of dividends, losses, and expenses. Losses reflect the discipline in policy formulation adopted by the insurer. The expense ratio measures the efficiency of an insurer and its adeptness in leveraging its assets to foster top-line growth. Given that it offers a comprehensive assessment of an insurance provider's profitability, this combined ratio is one of the foremost indicators that warrant scrutiny before purchasing a life insurance policy.
Commonly, the combined ratio for an Insurer is reported as a percentage. A ratio below 100 per cent signifies that the company is achieving underwriting profits, whereas a ratio exceeding 100 per cent indicates that the company is disbursing more funds in claims than it is accruing through premium payments.
This percentage signifies the portion of the premium designated for commissions. This ratio can influence the premium you end up paying. Beyond a certain threshold, a higher commission expense percentage translates to a reduced discount, leading to a higher premium. Lower commission expense ratios are typically associated with reduced premiums. However, many insurance providers do not extend this benefit to customers and maintain consistent premium rates. Alternatively, you can look at online life insurance policies, as they often have no commissions involved and are cheaper than policies purchased offline through an intermediary.
The Claim Settlement Ratio, or CSR, denotes the overall count of claims successfully resolved by an insurance provider, expressed as a percentage of the total claims submitted. For instance, if you go on the website of Edelweiss Tokio Life Insurance, you will see that their CSR is 99.20%. It signifies that Edelweiss Tokio Life Insurance duly honoured approximately 99 out of every 100 filed claims. This claim settlement ratio serves as a yardstick for gauging the integrity of an insurance company. It can offer insights into the likelihood of your insurance claim being settled; a higher life insurance claim settlement ratio implies a greater probability of your claim being honoured. IRDAI release the CSR of Insurers every year, so make sure to check the latest number online before choosing the insurer.
The ratios discussed in this article can be valuable tools to guide your choice of insurance provider. In addition, make sure you choose an insurance provider with a wide array of life insurance products, like Edelweiss Tokio Life Insurance. Their policies are comprehensive in nature and provide many benefits in addition to the coverage you need.
So do not wait; go on and find the right insurer today!