When securing your family’s financial future with term insurance, you are buying a promise that may not be fulfilled for decades. This promise rests entirely on the integrity and reliability of your insurance provider. The key metric most buyers look at is the claim settlement ratio (CSR), but there’s a vital, often-missed nuance: the difference between a single year’s stellar performance and a long-term average.
For a decision as critical as term insurance, consistency over time is far more valuable than a one-off “best” score. Relying on a five-year average of the claim settlement ratio provides a much clearer, more reliable picture of an insurer’s true commitment.
The Illusion of a Single-Year Score
Imagine an insurer announces a claim settlement ratio of 99% for the latest financial year—a truly excellent figure. While impressive, this number can sometimes be misleading.
A single year can be an anomaly driven by specific, non-recurring factors:
- Fewer High-Value Claims: In a given year, the insurer might have received fewer complex or high-value claims that typically require extensive scrutiny, thus boosting the ratio.
- Aggressive Cleanup: An insurer anticipating a dip in their ranking might aggressively clear old, straightforward pending claims to inflate the current year’s number.
- Market-Specific Fluke: External factors related to general mortality rates in a specific year can also skew results.
Buying term insurance based on one exceptional year is like investing in a stock based on a single quarter of record earnings. It lacks the evidence of sustained, repeatable performance that defines a trustworthy long-term partner.
The Power of the 5-Year Average
The claim settlement ratio is a measure of an insurer’s behavior, and behavior is best judged by patterns. Looking at an insurer’s CSR averaged over five consecutive years smooths out those sudden spikes and dips, revealing the company’s underlying operational efficiency and commitment to its policyholders.
What the 5-Year Average Tells You:
- Operational Stability: A consistently high claim settlement ratio over half a decade demonstrates that the insurer has robust, reliable internal processes for underwriting, documentation, and claim verification. It proves they can handle the volume and complexity of claims year after year.
- Financial Integrity: It shows that the company has a sustained capacity and willingness to honour large payouts without resorting to unnecessary scrutiny or technical rejections, regardless of annual market conditions.
- True Reputation: Consistency is the bedrock of reputation. An insurer that maintains a CSR between 97% and 98% for five years is a far safer bet than one that jumps from 90% to 99.5% and back to 95%. You are looking for a reliable partner for your term insurance, not a gambler.
Your Final Checklist for Term Insurance
When you evaluate a company for your term insurance, make the claim settlement ratio your priority, but apply the consistency filter.
Don’t just glance at the latest figure; dig for the historical data. An average CSR over the last five years that is consistently above 97% should instill confidence. This approach safeguards your policy against the statistical noise of a single year, ensuring that the critical financial safety net you put in place today will be guaranteed by a dependable, consistent insurer tomorrow.
Also Read-Unveiling the Mystery: Do Goldfish Really Have Teeth?
