Placeholder Image

Five Ratios to Evaluate Your Financial Health

Published by rinap059 on 03/02/2017

You all are aware that to be healthy various parameters of your body (such as blood pressure, cholesterol levels, Body Mass Index, sugar levels etc.) should be within certain desired range. If not, you need to take appropriate medication to bring them to normal levels.
But what about your personal finance? Have you ever evaluated your financial health? How do you know you are leading a financially healthy life? Or are you prone to financial illnesses such as poor returns, high debt exposure etc.?
Discussed below are five financial parameters that will help you to evaluate your financial health. And if you fall outside the safe zone, you need to take appropriate action to prevent any serious damage to your financial health.
1. The Liquidity Ratio
Liquidity Ratio = (Cash + Balance in Savings A/c, etc.)/Avg. monthly expenses
As you would have guessed from the above equation, Liquidity Ratio essentially tells whether you can 'comfortably' meet any emergency needs or not.
You would have come across many instances when you were in sudden need of cash. There is a great investment opportunity (e.g. a crash in the markets); a sudden marriage has come-up in the family; someone needs to be hospitalized; etc.
We should be prepared for such unexpected expenses. If all the money is locked-up in long-term investments, you could incur a loss in converting them into cash. Sometimes you may not even be able to do so.
While, there is no perfect number, a ratio of around 3-5 is generally considered to be OK; i.e. money equivalent to about 3-5 times of your monthly expenses should be kept handy.
A lower ratio means that you run a risk of not having sufficient cash to meet the emergencies and too high a ratio means your money is losing out on returns.
2. The Idle-Cash Ratio
Idle-Cash Ratio = (Cash, Balance in Savings A/c etc - Emergency Corpus)/Take-home pay
Any cash lying idle (over and above what you need to keep aside for emergencies) is a lost opportunity.
If this ratio is say up to around 10-15%, then it's fine. But a higher ratio means that you are lazy with your investments. This, in turn, means not earning higher returns on your funds. You are not making your money work efficiently for you.
In today's world of conveniences - home service, online options, automatic investing etc. - this is simply not done. You need to immediately get down to the business of automating your investments as far as possible and as soon as possible.
3. The Savings Ratio
Savings Ratio = Amount invested per month/Take-home pay
As life-spans increase and job-spans reduce, we all need to build larger retirement corpus to take care of higher number of non/less-productive years. The more you save, the more capital you accumulate. That's simple logic. But too much saving, at the cost of not enjoying the life today, is also bad. The idea is to get the balance right.
First, broadly work out what corpus would be sufficient for you to live comfortably from say the age of 50 to 80 if there were no other income. (Don't forget to factor in inflation).
Now see if your present
Solvency Ratio is sufficient to build that corpus. If yes, then you need not worry. If not, you have to tighten your belts. However, there is a limit up to which this is possible. If, even after improving the savings ratio, there is still a shortfall expected then you either need to increase your earnings or have a re-look at your retirement corpus and make it more modest.

Source: -

Insurance Claims Management with New Software Programs

The Role of Insurance Companies in Capital Markets
The insurance industry is a vital part of financial markets. Companies promote risk mitigation by offering individuals and organizations various types of insurance products. These products fall under two basic categories - life and non-life/general.
Proceeds from insurance products are converted to long-term investments on behalf and for the benefit of stakeholders, particularly insurance policyholders. These investments can be in the form of corporate stocks, government bonds, and other financial instruments that later earn a projected profit either upon a policyholder's death or at a specified period of time for the insured and his/her beneficiaries. Thus, aside from national and global economies, the insurance industry is essential to personal well-being as well.
Insurance Claims Management: Challenges and Good Practices of Client Service
Unlike life insurance, general assurance protects people and businesses from economic losses caused by natural disasters and human-made injuries, as well as related legal liabilities. In both cases, however, insurers are aware that it is imperative for them to satisfy policyholders with company services. With this context, some companies have developed software programs designed to assist client insurance providers in their claims management needs, such as producing timely and high-quality reports and claims settlement as an insurance firm's key functions. The article notes that the latter "can be used as a marketing tool" and helps retain customers. It also states how necessary it is for insurance companies to "manage" the nitty-gritty aspects of claims processing that includes determining the "Average time being taken for the settlement of a claim and the Claim Settlement Ratio and how it compares with other operators in the market." Moreover, "a corporate claims management philosophy" should be adopted to inspire insurance claims personnel in serving clients efficiently, including providing them with compensatory approaches, if applicable.
In 2004, the Organization for Economic Cooperation and Development (OECD) adopted a set of guidelines for good practice for insurance claim management. The OECD Insurance Committee defined these guidelines that serve as a benchmark for insurance companies in its member countries, including the United States (US). Such measure is aimed to improve the industry's public image, to sustain its marketability, and to reduce losses. Adequate information and assistance to policyholders, good claim filing methods, and expeditious claim settlement were among the cited standards.
Providing Efficient Insurance Claims Service with New Software Programs
To help maintain a client base and achieve efficient claims management set by OECD, many companies have started developing software programs for insurance companies and professionals. With committed personnel and reliable IT (information technology) facilities that ensure confidentiality of data and are compatible with mobile communication gadgets like iPhone, some reputed companies have developed software tools that can document and help analyze critical insurance narratives, financial, and statistical information. Let us take a look at some of them.
• Claims Management Software programs generally cater to insurance and risk claims departments, third party claims administrators, and risk managers, especially those involved in legal cases. They feature an advanced search mechanism that easily finds one or more needed files, information, and transaction records for general insurance claims. They can produce reports that can be exported to spreadsheets, Microsoft Office applications, and ASCII text files.
• Some software programs track financial information relevant to construction defect litigation procedures. Data including payments, insurer shares, and other expenditures, are stored in a virtual repository that can be accessed anytime and anywhere by vendors, lawyers and claims handlers.
• Some software programs equip insurance claims professionals with activity documentation, organized notes, and database references. They also provide billing techniques that instantly monitor time-bound tasks. These include work periods and communication with clients through phone calls, faxes, and mails, among others.

Source: -