As the insurance industry is a very niche industry in itself, we should look at certain parameters which will help us judge the company’s operations in a more refined manner. 

Persistency Ratio

This ratio helps you understand how persistent customers have been in renewing their coverage year after year. This tells how loyal the customers are and if they have been paying their premium every year. It is considered as a parameter through which one can judge if the company is delivering the quality of the product over the years. It is measured at regular intervals like the 13th month, 25th month, 37th month and 61st month. A higher persistency ratio of any company tells you that it has been able to contain a large pool of satisfied clients.

Claim Settlement Ratio

It is one of the most pivotal ratios which one should definitely look into before buying insurance. It tells what percentage of the total claims filed by the customers have been settled by the organisation. No one would want to be insured by a company that takes a lot of time to settle the claim and disburse the payment. Higher the claim settlement ratio, much better for the company. 

Solvency Ratio

This ratio is important because it tells whether an insurance company has the money to settle all claims at liquidation. According to IRDA (Insurance Regulatory and Development Authority), every insurance entity needs to maintain a minimum solvency margin required of 1.5 or 150%. Higher solvency ratios indicate more capability of paying insurance claims during uncertain times which gives more confidence to an insuree.

Loss Ratio

Loss Ratio is a measurement of a company’s loss during a certain year. It shows the total amount of claims dispensed as a percentage of the total premium earned in that year. An increasing loss ratio tells that the company is in a situation of disbursing more payments, but is not able to earn premiums at a similarly high rate. Thus, a higher loss ratio indicates financial trouble for the company.

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