The health Insurance claim settlement ratio refers to the proportion of settlements made from the total amount of claims received from an insurance company in an accounting year.
It is among the most reliable variables that tell whether an insurance company can handle the claims of its customers effectively or not.
This ratio will give you an idea of how trustworthy the health insurance company could be should you ever need to file a claim.
The ratio of settlement for claims is usually calculated for every financial year.
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If you’re purchasing your insurance policy, look at the insurance company’s latest claim settlement percentage to gauge its credibility.
You must also take a look at the ratio of incurred claims.
The Ratio of Incurred Claims is the proportion between the net amounts of claims and the insurance provider’s net premium throughout.
The incurred claims ratio indicates insurance companies’ ability to pay claims.
What is the ideal ratio for incurred claims?
A lower incurred ratio signifies that the insurance company has extremely strict claims processing guidelines or even tough underwriting criteria that most insurance policies are rejected.
It also suggests that it charges more concerning the value it’s offering its policyholders.
Therefore, it is better to stay clear of a firm with the lowest claimed claim ratio.
Does this mean that a higher ratio is always beneficial to insurance policyholders? Not necessarily. Here’s why.
More than 100% incurred claims ratio is not suitable for insurance companies. The insurance company has spent more money settling claims than it received as an insurance premium.
This means that insurance is losing if the incurred claims ratio is more than 100%.
When you look at the incurred claim ratio, you should be aware of the higher ratios by new insurance companies.
Initially, an insurance company might not have been able to sell enough policies to earn a substantial premium.
Therefore, they may have a more than 100 percent ratio.
What is the ideal range for incurred claim ratio?
The incurred claims ratio of less than 50% is not productive for any policyholder. Ideally, the incurred claims ratio should be 75-90%.
Formula to Calculate the Claim Settlement Ratio
Now that you know the amount of settlement for claims, let’s figure out how to determine it.
Have a look at the formula for the claim settlement ratio below:
The Claim Settlement Ratio is (Total quantity of claims accepted or total number of claims approved) 100
The ratio of claim settlement is always stated as a percent. It gives you the percentage of the claims that are settled with the company.
Claims settlement ratios that insurance providers calculate by using the formula mentioned above. To better understand this, we will look at an example for the calculation of CSR. Take a look at the following information.
Let’s suppose that an insurance firm receives one lakh claims in a fiscal year. They settle 95,000 claims throughout the course of. Based on this information, below is how the settlement ratio is calculated.
Claim Settlement Ratio = (Total number of approved claims /total number of claims accepted) x 100
= (95,000 / 100,000) x 100
= 0.95 x 100
= 95%
What is a Good Claim Settlement Ratio?
Generally speaking, if you’re looking for the ratio of settlement for claims, the rule of thumb is that the higher the ratio, the more favorable it will be for you. A higher ratio means that the insurance company quickly settles most of its claims.
This is always a good thing for you and your beneficiaries.
However, the lower settlement ratio suggests that a higher percentage of the received claims are unapproved or not settled.
This could be because claimants provided inadequate information, or claims might be fraudulent.
But, it could also be due to the insurer’s inability to pay claims on time.
Therefore, selecting an insurance company with an increased claims settlement ratio is always advised. A higher than 85 percent claim settlement ratio is considered acceptable.
Why is a Claim Settlement Ratio Important?
If you are a potential buyer and a consumer, you might ask why this ratio is crucial in the decision-making process.
The ratio for settlement of claims is an essential element that will help you select the most suitable health insurance provider.
The reason you buy health insurance or any other type of insurance is to count on the financial security that the policy provides.
When an insured event occurs, it is essential to have a reliable insurance company that will step in to take care of the financial payments promptly.
In the case example, suppose you have a health insurance policy when you suddenly meet with an injury that requires an extended stay in the hospital. There is no concern about hospital costs because your insurance policy will cover these costs. Therefore, you go to your insurer and claim according to the appropriate procedure.
The main point is that the settlement ratio is vital as it allows you to select an insurance provider you can count on.
Therefore, when looking for an insurance plan, it is possible to narrow down insurance companies that offer plans compatible with your requirements.
