1. Claim Settlement Ratio (CSR)
Definition: CSR is the percentage of insurance claims settled by an insurer compared to the total claims received during a financial year.
Impact: A higher ratio (above 95% is preferred by IRDAI) indicates reliability in claim payouts, boosting customer trust and improving market reputation.
2. Incurred Claims Ratio (ICR)
Definition: ICR is the ratio of claims paid to the total premiums collected in a given period.
Impact: An ICR between 75-90% is ideal. A low ICR shows profitability but may signal low claim payouts, while a high ICR may indicate financial stress.
3. Solvency Ratio
Definition: Solvency ratio measures an insurer’s financial strength to meet long-term liabilities, calculated as available assets over liabilities.
Impact: IRDAI mandates a minimum solvency ratio of 1.5. A higher ratio ensures stability, reducing risk of default and protecting policyholders.
4. Persistency Ratio
Definition: Persistency ratio tracks the percentage of policyholders who renew their policies after a specified period (1, 5, or 13 months).
Impact: Higher persistency (above 80% recommended by IRDAI) indicates customer satisfaction and insurer credibility, directly affecting long-term profitability.
5. Expense Ratio
Definition: Expense ratio is the percentage of total operating expenses to the total premium collected.
Impact: A lower expense ratio (around 15-20% is desirable) reflects cost efficiency. High expenses can reduce profitability, but under-spending may affect service quality.