Though the Insurance Regulatory and Development Authority of India (IRDAI) undertakes consumer education and awareness campaigns throughout the year, insurance awareness and knowledge still remain low in the country. Given that 75% of the Indian population does not have life insurance plans, this fact should come as no surprise.

During the outbreak of COVID-19, we all realized that life insurance is an essential component of our lives, yet few individuals research insurance companies before purchasing different types of life insurance. Knowing the sum assured, premium, tenure, life insurance quotes, and claim process is insufficient; you must also be aware of some fundamentals.

What are those fundamentals, and what makes life insurance companies the best for you? Isn’t comparing the claim settlement ratio enough? It is quite true that most people will urge you to look at the claim settlement ratio, but it is only one aspect; there are other aspects that are just as significant. In this post, you will discover how to analyze the best life insurance company in India based on key indicators and determine the answer for yourself.

Claims settlement ratio: Claim settlement ratio (CSR) remains one of the most essential factors for assessing an insurance company’s performance from a consumer standpoint before they look at the Life Insurance. But what is the claim settlement ratio? CSR is simply the percentage of claims settled by an insurance company compared to the total claims received in a given year. A higher CSR indicates that the insurance provider is customer-friendly, making it easier to settle disputes.

Persistence ratio: The persistency ratio indicates the percentage of policyholders who have renewed their policy with the insurance firm. The IRDAI measures this ratio at intervals of 13, 25, 37, and 61 months, respectively. A high persistency ratio indicates that customers are satisfied with the various types of life insurance plans and services on offer. It represents the level of trust that customers have in the insurance provider.

Solvency Ratio: Simply put, the solvency ratio represents the financial situation of an insurance company. The IRDAI requires insurance businesses to have a solvency ratio of 150% to protect themselves from the possibility of insolvency. A high solvency ratio is a good sign since it indicates that the company has sufficient assets and cash flow to cover its liabilities, or in other words, enough money to settle claims.

Incurred claim ratio: The incurred claims ratio (ICR) measures the insurer’s ability to pay claims. ICR is computed as a percentage of the value of claims paid divided by the total amount of premium collected in a given year. An ICR ranging from 75 to 90% is considered healthy.

Note: Some people confuse the claim settlement ratio and the incurred claims ratio. One must understand that CSR is the number of claims settled vs those received, whereas ICR is the value of claims paid versus the total premium collected.

Commission expenditure ratio: Insurers must cover expenses associated with the acquiring and underwriting of insurance policies, such as insurance agent fees, advertising, employee wages, and so on. The commission expenditure ratio is the percentage of the insurance company’s expenses compared to the net premium earned in a given period. A larger expense ratio raises the premium paid by the consumer. It is considered to be a positive sign if the insurance company has a low expense ratio. 

Wide Premium Payment Windows: Paying your premium on time is an important condition for the insurance company in order to ensure your policy remains active throughout the period. So, make sure your insurance company allows you enough time to pay the premium. Having a wide payment window will allow you to pay the premium on time. It will also assist you in overcoming uncertainties in collecting huge premium amounts for annual or multi-year premiums.

Customer Service: Before purchasing any life insurance plans available in India from the insurance company, it might be difficult to assess the quality of customer service; nevertheless, a few interactions with the company’s customer assistance and some due diligence (both online and offline) will provide you with a reasonable picture of the quality of customer service.

Sometimes evaluating a company’s customer support service is completely subjective. A negative experience with a corporate representative may influence your decision-making. This is the reason why it is important to evaluate the insurance company based on reviews and also on unsatisfied customers. If you notice a trend in their complaints, it should raise a red signal. For example, if the majority of consumers complain about long wait times or high claim denial rates, this could be true.

EV ratio: Insurance is a long-term industry. This implies you get a policy today but will continue to pay premiums for several years. Insurers profit from this future income. So, the worth of a life insurance firm is determined by the future profits that the current business can generate. This is captured by the embedded value (EV), which is the sum of the present value of all future profits from the existing firm plus the net worth of the owners. Embedded value simply represents the value generated from the business sold by the company if it stops writing new business. The more business a company generates, the larger the embedded value, assuming all other metrics like persistency ratio and costs remain the same. Analysts examine EVs to determine values. For example, an insurer X may have a market valuation of Rs1,000 crore, but its EV could be Rs250 crore. This suggests that investors are prepared to pay four times the company’s EV, signalling a positive future. This has been the situation for life insurance businesses in India thus far. 

At last, we are saying, 

The next time you’re looking for the top life insurance company in India, consider these key factors to evaluate them. However, before you buy, you need to first narrow down the type of life insurance plans suited for you as per your situation. Do not be misled by a sales pitch; instead, conduct thorough research before purchasing any form of life insurance coverage. Rather than assessing a company based on a single factor or interaction, strive to gain a holistic perspective. This includes comparing life insurance quotes, evaluating their CSR, Incurred claim ratio and other key indicators given above.