Claim settlement ratio 2018-19 for term insurance: Useful or not?

Published: December 19, 2019 at 10:18 am

Last Updated on October 1, 2023 at 8:16 pm

The Claim settlement ratio for 2018-19 published by IRDA is analysed in detail to show how it can be used, what it can be used for, and how it is not useful (just like last year, even more so now!) to choose a term life insurance policy!

A FAQ on Claim Settlement Ratio

1 What is the claim settlement ratio?

The claim settlement ratio (CSR) is defined as the number of death claims paid out in a financial year divided by the total number of claims received. So if a company receives 76 claims, paid 70 claims and rejected 6, the claims settlement ratio is 70/76 = 92.1%

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

2 Which insurance company has the best claim settlement ratio?

According to the IRDA claim settlement ratio of life insurers 2017-18, TATA AIA has the highest claim settlement ratio of 99.07%. However, this is only over 2700 applications. Unless this becomes big enough, the ratio will fluctuate considerably.

3 Are there any disadvantages with using the claim settlement ratio for choosing a life insurer?

Yes, many! The claim settlement ratio does not distinguish between an endowment policy death claim and a term policy death claim.  It does not tell you why the policy was rejected. The CSR also does not distinguish between an established player with steady CSR and a new player with a much smaller market and fluctuating CSR.

4 Is the claim settlement ratio a probability of claim acceptance?

No, the CSR does not represent the probability of claim acceptance.

5 Why is the CSR misleading? 

  1. We have no idea what kind of policies were involved.
  2. We do not know the sum insured
  3. We don’t know why the claims were rejected – for all we know they could fraudulent claims. It is grossly incorrect to assume all applications are honest.
  4. We do not know how the deaths occurred – death claims are fairly straightforward, but still there are exclusions.

The claim settlement ratio should have never been a criterion for selecting a term insurance policy because there is zero evidence to support it. Thanks to irresponsible bloggers and reporters, it became popular.

Suppose insurance company A pays 528 out of 571 death claims, its CSR would be 92.4%, and if company B  pays 2699 out of 2807 death claims, its CSR would be 96.1%. The higher the number of death claims, the lesser the CSR would vary from year to year.

If you see an article that says company A has CSR ~ 92% and B has CSR ~ 96%, will you conclude that B is better than A because 96% is better than 92%? Every time we see a ratio or percentage, we tend to immediately assume it represents a probability. This is not the case. The CSR represents a fact-based on past data and says nothing about the future claim repayment rate of the company or the fate of our own claim.

We have this tendency to assume that only the insured are the victims, and if a claim is denied, the insurer is a cheat. There is again no data to support this.  If there are genuine claims, there will be a genuine claim rejections. The claim settlement ratio does not differentiate between rightful rejection and a wrongful rejection (which can be appealed against).

Even though it is incorrect to use it, until a few years ago, it could be used to reject insurers with say less than 90% CSR (this is largely due to less no of claims received but let that be). Buyers who did not want to pay LIC’s high premium could look for alternatives with reasonable CSR.

As we showed last year, many private players emerged with high CSR that it has made a choice difficult: Why claim settlement ratio will not help you choose a term life insurance policy. The situation this year is worse as the CSR of many insurers has increased.

Claim settlement ratio 2018-19 Data

Let us consider the data first. Source: IRDA Annual Report (page 175 in the pdf file, page 152 of the document).

It is incorrect to assume Tata AIA, HDFC, Max Life and ICICI have overtaken LIC in 2018-2019

The total claims received by all these private players is only about 5% of total LIC claims.  As a buyer, the choice was and is always simple. Those who do not wish to go for LIC can simply consider HDFC or Max or ICICI as these have the highest number of claims (next biggest market share).

Life InsurerTotal Claims No. of
Claims paid No. of
Claims paid No. of
Tata AIA2700267599.07%
Max Life150871489798.74%
ICICI Prudential108261067298.58%
Reliance Nippon8371817997.71%
Kotak Mahindra3038295997.40%
Bharti Axa1065103697.28%
Aditya Birla Sun Life5260511097.15%
Exide Life3335323697.03%
DHFL Pramerica65663596.80%
Star Union1258121796.74%
Private Total11228710851996.64%
PNB Met Life4170401296.21%
Edelweiss Tokio23922995.82%
IDBI Federal1306125195.79%
Future Generali1157110195.16%
SBI Life199021891395.03%
Bajaj Allianz127671213095.01%
Canara HSBC OBC100694694.04%
India First2242208192.82%
Industry Total86323784284797.64%

As an analyst, it is amusing to note that 10/23 companies have CSR > 97% and 21/23 companies have CSR > 95%. There is no meaningful way anyone can distinguish between 95% and 97%.

Death claims paid vs total claims 2018-2019

The graph is in log-log scale because of LIC’s lions-share. Comparing 2018-2019 data with 2017-2018, one can see that there are no outliers (Shriram was outside the line last year but has fallen in). This essentially means that the number of claims paid is proportional to the number of claims received.

Total no of claims paid in 2018-19 plotted versus total no of claim applications
Total no of claims paid in 2018-19 plotted versus total no of claim applications

That is, as the number of claims increases, the CSR will increase and then remain stable.

Claim Settlement Ratio vs Death Claims Received 2018-2019

Already most CSR’s are 95% plus. The remaining three red dots are expected to move up once their market share increases.

Claim settlement ratio 2018-19 plotted vs Total no claim applications
Claim settlement ratio 2018-19 plotted vs Total no claim applications

The CSR does not help you choose or even shortlist insurers. It only helps you avoid a few players whose market share is low

As per 2018-2019 data, all buyers can do is avoid life insurance policies from Canara HSBC OBC, India First, Sahara, Shriram (making it more difficult to increase their CSRs!).

To understand how CSR is related to market share, consider this example. HDFC has rejected 124/12946 claims in 2018-2019. So the CSR = (12946-124)/12946 = 99.04%.

Now consider insurer X with 248 claim rejections for the same no of claims.  CSR = (12946-248)/12946 =98.08%. Just a 0.97% drop for twice the number of claims rejected! Why? The denominator is huge.

Let us try the same with Sahara. It rejected 67/681 policies in 2018-2019 for a CSR of 90.16%. If this 67 was doubled, keeping 681 constant the CSR would drop by an almost 11% to 80.3%!

Tata AIA has only rejected 25 out of 2700 polices. Last year it rejected 108 out of 2707 policies. It is too early to say one thing or another based on this, and even if one can say something, it would not be of much use!

Fans of LIC must note that the total number of claims rejected by LIC is 4.4 times that of the entire industry!

If you study past annual reports, the privates have steadily received more and more claims, therefore paid more claims and therefore their CSR has improved. As the private insurers gain market share, you can expect them to move up the line shown above. See How to choose a term life insurance provider in 30 minutes!

Choosing a term plan is essentially taking a leap of faith based on personal comfort. Claim settlement ratio will not help in any way.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.

  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)