Benefit amount CSR is the most important ratio while buying life insurance. Here's why

Several factors need to be considered before purchasing life insurance, one of which is the claim settlement ratio (CSR). For the uninitiated, CSR measures an insurance company's efficiency in honouring its claims. The higher the CSR, the better. Bearing that in mind, we decided to review the CSR numbers for FY2022-23 released by the Insurance Regulatory and Development Authority of India (IRDAI) a few weeks back. But before that, let's first understand the different types of CSR and why it is an essential metric when buying life insurance. Types of claim settlement ratios Broadly, CSR can be calculated in two ways: In terms of the number of claims settled: This measures the percentage of claims the insurance company has settled against the total number of claims received in a given period. For instance, if an insurance company received 100 claims in a year and successfully settled 90, its CSR would be 90 per cent. In terms of the benefit amount received: It conveys the total amount of money that an insurance company has paid versus the total claim received. For example, a CSR of 90 per cent indicates that Rs 90 has been paid against a death claim of Rs 100. Which of these two values is more important? Typically, the benefit amount metric holds greater importance for potential and existing policyholders, as it gives a better picture of the insurer's ability to pay larger claims rather than only focusing on the number of claims settled. Evaluating CSR based on the benefit amount Although examining a life insurance company's claim settlement ratio (CSR) based on its benefit amount may provide valuable insights, solely focusing on the previous year's data may not suffice. Hence, it is advisable to look at a longer time frame, at least for the previous three years. Below is a graph that shows the average three-year CSR (in terms of benefit amount) of the life insurance companies

This article was originally published on March 22, 2024.