How to Calculate Claim Settlement Ratio in Health Insurance

The importance of buying a comprehensive health insurance plan is pretty clear in 2020. With enhanced features and dozens of insurers to choose from, consumers are now spoilt for choices. Comparing health insurance plans is no longer a luxury, but a necessity for today’s consumer. To simplify this process, insurers have developed parameters to compare health insurance plans against. One such parameter is known as the ‘Health insurance claim ratio,’ or simply ‘claim settlement ratio (CSR).’ What is this parameter and how can it help?

The majority of Indian life insurance customers base their decision on the premium amount. They select the insurer that offers the best value on the policy. While the premium amount is important, the insurance company's claim settlement ratio is also important to consider.

The claim settlement ratio is critical because it reflects the claim resolution history of an insurer. When choosing one, compare the claim payment ratios of several insurers.

This blog will discuss the claim settlement ratio, its types, benefits, and how it can help when buying a health policy.

What is the Health Insurance Claim Settlement Ratio (CSR)?

A health insurance claim settlement ratio is the percentage amount of claims that the health insurer has accepted as valid and settled against the total number of claims filed from its consumers in the same timeframe. This number is very helpful in comparing policies. The higher a claim settlement ratio of a company, the more claims they accept as valid. The IRDAI (Insurance Regulatory and Development Authority of India) calculates the claim settlement ratios of all registered insurance companies annually and publishes them on their own website. A claim settlement ratio of 80% to 90% is considered good, while anything above 90% is ideal. 

Types of Claim Settlement Ratio

Claim settlement ratio is paramount when choosing a policy and securing your future. Based on the mode of settlement, there are two types of claim settlement methods:

Cashless Claim Settlement

When you use your healthcare insurance to get medical treatment at a network hospital, you can file a cashless claim. You are not required to pay anything to the hospital for treatment and medical services under the cashless claim settlement. Instead, the insurer pays the hospital directly up to the claim amount. You will only be required to pay if you select co-payments or a sub-limit clause when purchasing the plan.

Reimbursement Claim Settlement

If you seek treatment at a hospital outside the insurer's network, you enter a reimbursement claim settlement procedure. According to this procedure, you must pay for hospital treatment and then receive reimbursement from your insurance provider based on the amount of the claim. The insurer is obligated to pay the entire claim amount after considering all voluntary or mandatory sub-limits and deductibles.

How is Health Insurance Claim Settlement Ratio Calculated?

The formula to calculate the claim settlement ratio is pretty straightforward. Be it life insurance, health insurance, or more, this calculation remains the same. It is as follows:

Claim Settlment Ratio (CSR) = (Total claims paid or settled) / (Total claims received + Any outstanding claims at the start of the year)

As an example: Suppose a health insurance provider A settles 90/100 of the claims made by its customers in a certain year. The insurer’s claim settlement ratio will be 90%. In the following year, if the same insurer A settles 250 out of the 290 claims made. It also has 10 outstanding claims from the prior year. Hence, its total claims come to 300 for the next year. Its claim settlement ratio will be:

[250 / (290+10)] x 100 = 83.33%

Hence, the number of claims accepted is simply divided by the total number of received in the same time period, and this number is ascribed a percentage value. Normally, a consumer need not calculate their health insurance claim settlement ratio. This number is published by the insurance provider on their website. One can also find a table of claim ratios published by the IRDAI all at once. 

Importance of the Health Insurance Claim Settlement Ratio

The significance of health insurance has been repeatedly emphasised, but its significance cannot be overstated. The general public's awareness has grown, as evidenced by the increased penetration of health insurance in the market today compared to a decade ago. With rising awareness, insurers are introducing newer types of health plans to entice potential buyers to purchase their products.

The claim ratio number is not a hard and fast rule for picking a policy but it is recommended that it hold some power over your final decision. This is because a lot of the benefits of health insurance like pre hospitalization expenses, critical illness insurance, and more that sway you towards one policy over another may not prove fruitful if that insurance provider has a low claim settlement ratio. The higher the claim settlement ratio of an insurance provider the more likely you are to reap the benefits of your policy.

You also get a degree of reassurance each time you pay your premiums towards your health insurance policy that if the need ever arose, your health insurance provider would cover you. There is also fierce competition in the insurance market at the moment, hence, you have the convenience of going for a policy that meets your quote of requirements while also offering a good CSR. 

Here are some of the benefits of considering the Claim Settlement Ratio

• Allows a sneak peek into the insurance provider’s history of settling claims.
• Grows the buyer's confidence in their policy and likely it is to protect them in a time of need.
• Makes buying health insurance easier. Looking at CSR can help compare different health insurance policies and make a decision about which is superior.
• A good CSR demonstrates reliability and efficiency from the insurance company’s end. A low CRS demonstrates a lack of efficiency in claim settlement. This information is helpful in understanding an insurance company better. 

Conclusion

In response to the surge in demand for health insurance, insurance providers are offering a slew of health insurance types so buyers can find exactly what they need — be it individual health insurance plans or family health insurance plans. Beyond the types of plans, insurers are also offering specialised insurance and enhanced benefits of health insurance like pre hospitalization expenses, critical illness insurance, and more. Claim settlement ratio is paramount when it comes to choosing a policy and securing your future. Read more on tips for buying health insurance here.