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

How CSR plays an important role while choosing life insurance

Importance of claim settlement ratio in life insurance choices

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 in India.

Key observations

Aegon Life Insurance recorded the highest CSR in individual life insurance for FY2022-23, while Shriram Life Insurance reported the lowest. Meaning, Aegon Life provided the highest settlement benefit. For instance, if the sum assured was worth Rs 1 crore, it would give back 98 per cent of it, which translates to 98 lakh.

We also found the CSR ratio to fluctuate with some insurers. HDFC Life Insurance is one such example. The country's top private sector insurers saw its benefit amount ratio slump below 90 per cent in FY20 and FY21. But it made a drastic comeback in FY23, as the ratio jumped to 96.51 per cent.

Moreover, HDFC Life Insurance's CSR based on the number of policies has been fairly consistent, remaining upwards of 98 per cent, which further strengthens our rationale for prioritising the benefit amount CSR over the number of policies. It's noteworthy that the world faced a once-in-a-lifetime pandemic only some time back.

Below are two tables that show the life insurance companies whose benefit amount CSR either surged or slumped in recent times.

Insurers whose benefit amount CSR rose by more than 2 per cent

These life insurance companies witnessed a surge in CSR in recent times 

Life insurance company FY 2021-22 (%) FY 2022-23 (%) Change in CSR (%)
HDFC 89.4 96.5 7.1
PNB Met India 93.4 95.8 2.4
Star Union Dai-ichi 91.4 93.5 2.1

Insurers whose benefit amount CSR fell by more than 2 per cent

These life insurance companies saw a considerable slump in their CSR

Life insurance company FY 2021-22 (%) FY 2022-23 (%) Change in CSR (%)
Max 96.7 94.6 -2.1
Reliance Nippon 95.4 93.1 -2.3
Aditya Birla Sun Life 96.2 92.2 -3.9
ICICI Prudential 95.5 91 -4.5
Shriram 82.4 77.6 -4.8
Future Generali India 89.6 79.9 -9.7
Note: Exide Life Insurance has been excluded since its take over by HDFC Life Insurance
Source: IRDAI website.

Our take

A high CSR is crucial while buying life insurance since it reflects the insurer's dedication to clients, prioritising easing financial burdens for beneficiaries during difficult times.

However, in the event of policy rejection, even by an insurer with a high CSR, there's recourse available. You can either appeal the decision or file a complaint with the insurance ombudsman or the IRDAI. Nevertheless, it's crucial to carefully review your policy documents and the reason for the claim rejection.

If you want to learn more about buying life insurance, here's a guide to assist you.

Also read: How to increase your life insurance cover

Other Categories