2/10/2015 Life insurers are settling more claims Livemint

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According to the latest annual report published by the InsuranceRegulatory Development Authority of India (Irdai), life insurance companieshave done a better job of settling death claims in financial year (FY) 2014than in FY13. In terms of the number of policies settled, 12 life insurancecompanies settled at least 90% of the death claims they received in FY14compared with seven companies in FY13.

Claims in life insurance are the most important litmus test for an insurer,because it’s important that your dependants don’t get harassed at the timeof making a claim, as that would defeat the whole purpose of buying lifeinsurance. There are two ways in which you can ensure that such asituation doesn’t arise—be meticulous when buying insurance, and keep atrack of your insurer’s claim record.

The data on claims is available in Irdai’s annual report, but there are layersto the information shared, and which you need to understand. Mint bringsto you the latest report card on claims of life insurance companies andtakes you through reading these numbers.

The toppersIrdai reports claims settlement for retail policies in terms of the number ofpolicies settled and the amount of benefit or sum assured settled. We havelooked at the number of policies settled and have calculated claimssettlement as a percentage of the overall number of claims— claimsbooked plus claims outstanding at the start of the year. Naturally, acompany that has a high percentage of claims paid bodes well for thepolicyholder.

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There are 24 life insurers in India, of which half settled at least 90% of theirclaims. “There is more awareness on claims processes among claimants.Also, a good grievance redressal mechanism has contributed to claimssettlement. Public disclosure on claims information and a wider recognitionthat timely claim settlement is the most important moment of truth forcustomers are some of the factors that have improved the claimssettlement for insurers,” said Amitabh Chaudhry, managing director andchief executive officer, HDFC Standard Life Insurance Co. Ltd. “As theindustry grows, it is natural that more and more focus would be on claimsprocessing and payments,” he added.

But is 90% an impressive track record? “Ideally, the claims paid ratiocalculated based on the number of policies should be over 95%. In thedeveloped markets, that’s the norm,” said Kapil Mehta, managing director,SecureNow Insurance Broker Pvt. Ltd. While in terms of the number ofpolicies settled, the industry is closer to the international norm, it’s farbehind at claims settlement in terms of the total sum assured payout.

For the privatesector, thepercentage ofclaims settlement interms of the sumassured was78.13% in FY14,while for LIC it was95.17%. Thismeans that if theinsurer got claimsof a total sumassured or deathbenefit amount ofRs.100 coming fromvarious policies, itsettled only Rs.78.13of the sumassured. “For sumassured, the claimssettlement ratioshould at least be

90%,” said Mehta. “This ratio will always be a little lower because typicallyit’s the high sum assured policies, such as term plans, that are investigatedthoroughly and repudiated. Traditional plans have the lowest repudiation asthe insurance element is tiny, followed by Ulips (unitlinked insuranceplans),” said Mehta.

Many others agree with this. “The industry is seeing higher percentage ofclaims under protection products because these have gained popularityand form a good percentage of the business written. Since such policieshave gained popularity in the recent past, every claim we receive in thisarea is an early claim. As we progress, we will see more of nonearlyclaims, which do not require investigation and would be settled quickly. So,the ratio will change and be similar to the number of claims,” saidChaudhry. Early claims are typically those claimed in the first two years ofbuying the policy.

Bottom of the listAs we move down the performance chart, there are seven insurers thathave settled less than 90% but more than 80% of the claims in terms ofpolicies. That leaves five companies at the bottom of the pile, but there isslight improvement. From six insurers that settled less than 80% of claimsin FY13, the number is down to five.

Aegon Religare Life Insurance Co. Ltd, which was at the bottom of the pilein FY13 and in the three years before that, settled 81% of the claims inFY14. According to the insurer, this was largely due to the fact that it wasable to check fraudulent practices through better customer onboarding

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2/10/2015 Life insurers are settling more claims Livemint

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processes.

Insurance companies bet on you living longer. So, claims filed early,typically within two years of buying the policy, are investigated thoroughly torule out fraud and nondisclosure of facts that could have made you a highrisk candidate for the insurer. Due to this, typically, younger insurancecompanies have a lower claims settlement ratio as they have a higherpercentage of early claims. “There are more chances of fraud, syndicatedcustomer misrepresentation and medical nondisclosures in early claims,”said Munish Sharda, managing director and chief executive officer, FutureGenerali Life Insurance Co. Ltd. The insurer settled 75% of the claims inFY14. “Of the total claims denied, 94% are early claims, and the reason ofrepudiation is mostly medical nondisclosures or misrepresentation. Thenonearly claim settlement ratio has been stable at 98% in FY15; it was99% in FY14,” he added.

Next in line is IndiaFirst Life Insurance Co. Ltd, which settled 73% of thetotal number of claims. According to the insurer, the repudiation is primarilyon early claims and its nonearly claims settlement is 99%.

Shriram LifeInsurance Co. Ltd,on the other hand,settled only 68% ofthe claimsbecause, accordingto the insurer, itcaters to entry levelcustomers. “Wehave comparativelyhigher claimrepudiation on theindividual side, butif we look at groupbusiness whereShriram Life has85% of its exposureon lives covered,the claims payout is100%. On theindividual side therepudiation is

largely on account of fraud or misrepresentation as we cater to entry levelcustomers and have relaxed underwriting,” said Manoj Jain, chief executiveofficer, Shriram Life Insurance.

For Edelweiss Tokio Life Insurance Co. Ltd, claims settlement ratio is 60%as all its claims are early claims (company was launched in FY12). DHFLPramerica Life Insurance Co. Ltd recorded the lowest claims settlementratio of 22%, with about 24% of the claims repudiated and 54% pending atthe end of the year. “In early claims, we have to necessarily investigate thecause of death, which invariably results in delays on account of thegeographical spread of our customers. But we are taking steps to reducethe claims settlement time further,” said Anoop Pabby, chief executiveofficer and managing director, DHFL Pramerica. “This fiscal, our nonearlyclaims settlement ratio is 91%,” he added.

Given that claims repudiation arise out of early claims and from bigticketpolicies, a further segregation of data into the age of claims and the typesof policies would have helped. These numbers are also important whenyou consistently track them. “It’s unlikely that fraudulent claims willconsistently be high for the insurer. Even if it’s early claims, it reflects onthe underwriting standards of the insurer. As the industry matures, theclaims settlement should improve too,” said Mehta.

What should you do?There is good news ahead. The Insurance Laws (Amendment) Ordinance,

2/10/2015 Life insurers are settling more claims Livemint

http://www.livemint.com/Money/xNNnAOIJMu6Ia75Dto0UnK/Lifeinsurersaresettlingmoreclaims.html 4/5

2014 will push insurers towards better underwriting standards. According tothe new rules, insurers can’t reject a claim on any grounds after threeyears. So, since the rules prohibit them from rejecting nonearly claims, theindustry is likely to improve standards. “When one cannot underwrite at thetime of claim, the only option left is to underwrite at the time of proposal.Insurers will more and more take to underwriting risks at the time ofproposal so that they are able to create a good portfolio, which keepsclaims under control. We foresee a definite change in new businessprocesses, where proposals would be strictly underwritten to ensure thatrisks are avoided upfront. As a result of this, we will see lower repudiationsand higher claim settlements,” said Chaudhry.

The rules will encourage better hygiene, but you need to do your bit too.Fill the proposal form at the time of buying an insurance policy with honestyand diligence. Don’t pass this important exercise to your agent and sign onall the pages without so much as a cursory glance. Spend time inunderstanding your policy and giving complete details to the insurerbecause, regardless of the claims performance or the time period, anyinsurer will find it very difficult to deny a genuine claim.

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GS • 7 days ago

Good original analysis.

DHFL Pramerica might also improve over next few years with the exit of DHL

Once the industry matures, it would compete on service, distribution network and pricing.

The claim settlement is a misleading metric for a customer who wants to buy insurance, it isto a large extent governed by the regulator through the redressal mechanism on publishedpolicy document with terms and conditions.

The low settlement ratio is more a reflection of how the customers have been acquired bythe insurers with poor underwriting during proposal creation.

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