In 2015 the rules for settling death claims for the life insurance industry changed significantly. As per the Insurance Laws (Amendment) Act, 2015, life insurance companies have to compulsorily pay all claims made 3 years after the commencement of a policy. Earlier, insurers had a 2-year window to investigate and deny early claims. However, insurers could deny a claim even after that—in case of fraud and deliberate suppression or misrepresentation of material information by the policyholder. Now the rules give insurers a 3-year window and any claims arising after that have to be paid. Although insurers say that cases of demonstrable fraud that make the contract null and void—for instance buying insurance for a deceased person—can be denied well after 3 years . So, with a heavy clampdown on repudiation of death claims after 3 policy years, is it still important to track death settlement record? According to K.S. Gopalakrishnan, chief executive officer, RGA, India, a reinsurance company headquartered in Canada, it continues to be important. “Life insurance is in the business of settling claims, so a high repudiation rate should be cause for worry. It doesn’t matter if the repudiation is on account of early claims, because even before the Act was amended, bulk of repudiation happened in early claims. Claims settlement record reflects the underwriting practices and claims-settling ability of an insurer," he said.
Even the regulator considers this an important parameter and in its annual report gives out the claims settlement figures of all 24 life insurance companies, both by the number of policies and the benefit amount paid. Further, the claims are segregated as individual (retail policies) and group claims. The Insurance Regulatory and Development Authority of India (Irdai) released its annual report for FY17 early this month and we take you through the latest death claims report card of the life insurance companies.
Death claims fall into four buckets: claims settled, claims rejected, claims written back and claims pending at the end of the year. These buckets are self-explanatory except ‘claims written back’, which are claims that stay unclaimed on account of factors such as litigation or documents pending. This is a tiny number or zero for most insurers. We have looked at the number of claims settled for the retail segment and the good news is that insurers are settling more claims than before. “The insurance industry, on an average, settled 89.4% of the claims in FY15 and this number improved to 93.7% in FY17. This is because underwriting checks have improved," said V. Viswanand, senior director and chief operations officer, Max Life Insurance Co. Ltd.
So, while in FY16 nearly half the insurers couldn’t settle even 90% of the claims reported, in FY17 only four insurers had a claims settlement ratios of less than 90%.
The industry, however, still has some ground to cover when you assess insurers on the basis of an ideal claims settlement ratio. “A 90% claims settlement ratio means one in 10 policies was rejected.... Claims settlement should be upwards of 95%," said Kapil Mehta, co-founder, SecureNow.in. Only eight insurers managed to settle at least 95% of the claims in FY17, compared to six in FY16. In fact, when you look at the volume of claims, the scope for improvement is much more. “For all the insurers, the claims rejection by value is more than the volume. This means, the higher value claims are being rejected and so tracking claims settlement becomes even more relevant. By volume, only seven insurers have a claims settlement of over 90% and six are below 80%," added Mehta. Further, even insurers that have very good claims-paid record by number of policies, may have fared badly when it comes to claims paid as per the benefit amount paid—pointing to the fact that larger the sum assured, more stringent is the investigation.
All the insurers we spoke to pointed that rejections take place primarily in early claims: claims that are reported in the first 3 years due to high incidence of fraud.
In an emailed response, PNB Metlife Insurance Co. Ltd stated that its ‘non-early’claims settlement (claims more than 3 years old) was upwards of 98%. As for early claims, the insurer stated that due to the increasing focus on protection business (term plans) and pan-India geographical presence, the claims settlement ratio had dropped in the last couple of years mainly due to prevalence of fraud in some geographies. In FY17, the insurer settled only 87.14% of the claims and falls in the bottom five in the list of insurers with relatively poor claims settlement records.
The other reason for a high repudiation rate is the relaxed underwriting adopted by insurers for smooth and quick policy issuance.
“We walk a tight rope between simple on-boarding and ensuring only genuine claims are paid. Claims, especially early claims, are investigated thoroughly and where we are able to establish fraud—that would also include suppression of material information—we reject the claims. In fact, when these cases go to court, in most cases the verdict is in our favour, reiterating the fairness of our assessment," said R.M. Vishakha, chief executive officer and managing director, IndiaFirst Life Insurance Co. Ltd. IndiaFirst Life had settled only 83% of the claims in FY17.
While rejections maybe largely for early claims, even a high rejection rate in early claims is cause for worry. “Life insurance is a growing sector and every year nearly 30% of the claims that come to insurers are early claims. So, a high repudiation rate doesn’t bode well for customers as it erodes their faith," said Viswanand. Does this mean insurers should focus on tighter underwriting at the time of policy issuance rather than speeding it up? “In case of life and health insurance, the whole purpose of insurance is defeated if underwriting is done at the time of claims and not at the time of issuing a policy. even globally, underwriting is typically never done at the time of claim for these two categories of insurance as it has an adverse impact on the reputation of the insurer," added Viswanand.
Tracking claims settlement record of an insurer is important and you should do it over a period of time to see improvement. If you see no improvement, be wary of that insurer. It would also help if Irdai publishes the statistics on the time taken by insurers to settle the claim. “There is a window of 30 days to pay the claims but an ideal practice should be to pay the claim within a day or two of receiving all documents. This metric is also very relevant to assess the claims-paying ability of an insurer," added Viswanand.
At your end, ensure to fill the proposal form honestly because that’s what will land you in trouble especially if it’s an early claim. Additionally, it’s also better to go for insurance products that ask for a medical check-up.