The claims settlement ratio for new entrants like IndiaFirst and SUD Life has improved and beating even some players who are in life insurance business for over a decade. As expected, IRDA data shows LIC continues to reign

The claims settlement ratio for new entrants like IndiaFirst and Star Union Dai-ichi (SUD) Life has improved and beating even some players who are in life insurance business for over a decade. As expected, IRDA data shows LIC continues to reign. The claims settlement ratio for IndiaFirst (2009) and SUD Life (2009) has improved from mid-50s last year to 82.01% and 80.69%, respectively, this year which competes with or beats even established life insurance players like Aviva (2002) – 84.15%, SBI Life (2001) – 82.24%, Reliance Life (2002) – 81.36%, Tata AIG (2001) – 81.93%, and Max New York Life (2000) – 77.96%. Another new entrant Canara HSBC (2008) improved its claims settlement from 38.71% last year to 71.02% this year.

Life Insurance Corporation of India (LIC) (1956) remains unbeatable with 97.03% settlement ratio. The top three private insurers as far as claims settlement are HDFC Life (2000) – 95.41%, ICICI Pru Life (2000) – 94.61% and Birla Sun Life (2001) – 94.66%. They are followed by ING Life (2001) – 90.49%, Kotak Mahindra (2001) – 89.30%, Bajaj Allianz (2001) – 88.69%.

Bharti AXA Life unveiled its new brand positioning last year—“Jeevan Suraksha Ka Naya Nazariya”. It has a service guarantee of “Release of Fund Value within 48 hours” of receiving a claim intimation. The settlement promise is only applicable for unit-linked insurance plans (ULIPs) and not for any other insurance product, including term insurance. This apart, the promise is to settle only the fund value of the plan and not the sum assured. In 2010-11, Bharti AXA Life (2006) had improved settlement to 87.17%, 12.58% of claims repudiated and 0.25% pending. Almost zero pending shows that Bharti AXA certainly is making quick decisions on claims.  

The bottom three insurers in claims settlement are Aegon Religare (2008) – 52.31%, DLF Pramerica (2008) – 51.22% and Future Generali (2007) – 50.52%. Aegon Religare, who started the trend of online term plan with its innovative product iTerm, is still lagging in claims settlement. It has a claims rejection ratio of 44.63%, which is the highest in the industry. The positive aspect is that the claims pending are only 3.08%. Insurers offering online term plans with rock-bottom premium for high sum assured will surely dissect claims for its truthfulness.

Private insurers are struggling to break-even. New ULIP regulations lowering the upfront first year commission have driven business away from ULIPs to traditional plans. Combine that with a consistent drop in new business premium collection for over a year, insurance companies will surely scrutinise claims to a greater extent in the future.

Can the Insurance Regulatory and Development Authority (IRDA) publish claims settlement, repudiation and pending ratios sooner every year? The 2010-11 data came out in end-December 2011. It will also help if the regulator puts out this important data in public eyes by publishing it in leading newspaper/magazines, rather than keeping it in a 500-page report that the public may not even bother to read—let alone understand it. How about giving that data for general insurance companies especially for mediclaim? IRDA needs to bring clarity which will help mediclaim policyholders.

Sahara (2004) has highest claims pending (31.64%) while IndiaFirst (2009) had zero claims pending in the same period.

Check out for key ratios of claims settlement, repudiation and pending cases before buying insurance. These ratios have to be looked at from the viewpoint that life insurance companies which were started recently are bound to have lower settlement and higher pending claims.

This is because any death claim that happens within three years of policy issuance gets scrutinised for its veracity. It can take time for claim settlement and there is even a possibility of claim repudiation. The longer an insurance company has been in existence, the ratios should start looking favourable for the entity.

An insurance company’s inefficiencies or poor underwriting practices can be a reason for high repudiation ratios. It can also be due to incorrect or hidden details in policy forms filled by a policyholder with or without abetment from an agent. It is imperative that the policyholder fills up the policy form completely and in good faith without the agent filling any policyholder personal data.

An ethical agent who is properly trained by the insurer will not mislead the potential customer just for getting commission. The policyholder will be at a loss because the policy form will be scrutinised only at the time of claim.

The other reason can be policyholders themselves indulging in fraud. As far as fraudulent claims are concerned, the insurer has every right to repudiate the claim.

The ‘claims settlement ratio’ is the number of claims rejected with respect to claims received. The ‘claims repudiated ratio’ is the number of claims rejected with respect to claims received. The ‘claims pending ratio’ is the number of claims pending (not settled, nor rejected) with respect to claims received.
Last year’s article on claim settlement -Max New York Life—Max fall in claims settlement ratio