Among the many questions put forth to Mint Money, the two most persistent are: Will the private sector insurance company pay my claim? Will they be around and what is their payment history? It is fairly easy to answer the first question: the regulatory rules make it difficult for any insurance company to run away with people’s money. The second question, however, has no black and white answer and there are nuances that you will have to understand. To give you a cogent reply, we looked at the claims record (for the year 2009-10) of all 23 insurers and examined them on three parameters: claims settled, claims repudiated and claims pending. The final takeaway is this: a poor ratio does not imply a company with poor customer service standards. Read carefully to understand how these three ratios are to be used to evaluate your insurer.
Claim settlement ratio
On the face of it, a lower claims settlement ratio (30% would mean that three out of 10 claims are settled and the rest are refused) would point to a company that does not pay its customers when claims are made. While Life Insurance Corp. of India (LIC) has a claim settlement ratio (CSR) of 97%, more than half of the companies in India have a CSR of more than 78% with that of six insurers being above 88%. Most insurers that didn’t settle even half the claims, started operation in 2007-2008 with Shriram Life Insurance Co. Ltd being the sole exception. Shriram Life launched operation in the year 2005 yet its claim settlement for the year 2009-10 has been only 40%. We expanded the net wider and one of the first private companies to set shop in India came under the net of top 10 companies that have poor claim settlement performance. Max New York Life Insurance Co. Ltd, launched in 2000, has settled only 66% of the claims. “(The) 2010 fiscal was an aberration for us since we decided to change our claims management processes,” said a company official. “We got a lot of claims in the previous year that prompted us to analyse our underwriting and claims settlement processes.”
Also See Individual Death Claims Record (PDF)
What it means: Older insurance firms will have a better CSR than the new ones. Kamalji Sahay, managing director and chief executive officer, Star Union Dai-ichi Life Insurance Co. Ltd explains: “Young insurers have claims which are typically in the initial stage of the policy tenure. Early claims need extra investigation and hence usually they take more time in settlement. However, other indicators like claims repudiation and claims pending records will shed light on claims settlement practice of companies.” Sahay refers to a provision of the life insurance industry where insurers can rigorously investigate claims that are made within three years of buying a policy and the process can take as long as six months. Policies older than three years must be settled in a month’s time. And since insurers who set shop in 2007 or later will have all their claims that are made within three years of buying the policy, they have a poor CSR.
How to use this: If you see a company set up before 2007 with a CSR of below 78%, consider it a red flag.
Claim repudiation ratio
A claim repudiation ratio (CRR) of 40% means that four out of 10 claims made get rejected by the insurance company. Aegon Religare Life Insurance Co. Ltd, which incidentally was also the first insurer to launch term plans online, has the highest percentage of claim repudiation. Of a total claim of 50, Aegon Religare rejected 22 claims: a 44% claims repudiation record. LIC has the lowest percentage of claims repudiation at 1%, however, even that one percentage point means 8,227 policies in the case of LIC.
What it means for you: The CRR is as much a reflection on the underwriting standards of the insurer as a reflection on the policyholder who gives incorrect or shoddy information at the time of buying the policy. Says Samir Bali, leader-insurance, Ernst and Young: “A high percentage of claims repudiation may mean that the company has poor standards of underwriting. Lack of medical check ups, wrong information in the proposal form may lead to claims repudiation.” A high CRR also reflects poor training of agents who encourage their customers to fill up wrong information so that the policies are accepted by the insurer.
There is a third factor that influences the CRR—the products sold will also lead to low or high CRR numbers. Says Chirag Jain, chief operating officer, Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd: “The percentage of claims repudiation will also depend on the portfolio of the insurer. So a insurer having a large chunk in pension plans will have a favourable percentage of claims repudiation while an insurer dealing largely with term plans will have a relatively adverse percentage of claims repudiation.” This means that a company with a higher term insurance portfolio will have a worse CRR than a company focused mainly on money-back or endowment plans since in the latter the fund value builds up to make the payment at claim, while in a term policy it is a pure risk cover.
How to use this data: A company older than four years and with a high claims rejection ratio typically means poor underwriting standards.
Claims pending ratio
A claims pending ratio (CPR) of 50% means five out of 10 claims registered were pending at the end of 2010 fiscal. While most insurers have their claims pending for less than three months, insurers also have policies for more than a year pending with them. Says Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance Co. Ltd: “Sometimes the beneficiary doesn’t give sufficient documents or just sits on the claims. We can’t settle the claim unless we get all the required information and hence the delay.”
What it means for you: A high CPR need not mean a bad company. For example, the 50% CPR of DLF Pramerica Life Insurance Co. Ltd looks bad, but only till we see that it is five out of 10 companies we are looking at. Again younger companies will tend to have more pending claims since they take more time to investigate and cases of fraudulent practices are highest during early claims. “Typically we find that policyholders who make early claims take a policy with the knowledge that they would be invoking the policy soon,” said Jain. “Hence we find that medical information is not accurate which leads to further investigation. Hence early claims call for investigation and hence claims are usually pending in case of young insurers.”
In other cases, claims could also be pending because of lack of documentary evidences. The regulator mandates the insurer to settle the claim within 30 days of receiving all required documents. However, the claims remain pending till such time insurers receive all the documents.
How to use this data: For a company that’s more than four years old, a high pending claims ratio means poor claims settlement standards.
What you should do
These numbers don’t give any conclusive results if just the numbers are looked at. A pure number analysis tilts the balance in favour of older investment product portfolio heavy companies rather than newer firms with a larger pure play insurance cover portfolio. Despite this handicap, the ratios offer an insight into the hygiene standards in companies. You can do two things to use these ratios to your advantage. One, if the claim happens early in the life of the policy there will be a much more rigorous investigation than a 10- or 15-year-old policy. So ensure that the data input is correct, no medical truths been twisted and the papers are in a location that your beneficiary can get them without you being around to point out the second drawer under the dining room cabinet.
Two, fill up the insurance proposal form as if your life depends on it. Well, not only yours, but the future life of your dependants does actually depend on the due diligence done by you when you filled that life cover form. And as for the one question, yes your insurer will settle your claim but only if you have been meticulous in giving all the information accurately. And if you still run into a problem, you have the Insurance Regulatory and Development Authority and subsequently the insurance ombudsman to seek recourse in.
Graphic by Ahmed Raza Khan/Mint