Claim Settlement Ratio for Life Insurance Companies (2009-2010) (http://www.bachatkhata.com/2011/03/claim-settlement-ratio-for-life-insurance-companies2009-2010.

html) Introduction Insurance business today is not the same anymore as it used to be a few decades back. In the earlier days one would not need to worry so much before buying an insurance cover since there were limited choices in the market. Infact till a decade back, the only choice that was available was Life Insurance Corporation (LIC) of India. But now, with 23 life insurance companies fighting for market share and with so much of choice available, it has become difficult to easily judge which plan of which company to go for. One might do ample of research, take many suggestions from family and friends but still reach no conclusion as to finally what to select? So how do you make a choice? Factors to be considered for buying insurance In life insurance, there can be a number of criteria based on which people select which insurance plan to go for. Some of them include the premium payable, the benefits offered, features and flexibility offered and objective / purpose for which the plan is being bought etc. One important thing that lot of people take into consideration nowadays is the claim settlement ratio of the insurance company and the timeframe taken to settle the claim. However it really depends on personal choice of an individual about what matters to him the most. It makes sense for people to invest in a plan of a company that has a good claim settlement ratio and a company that has a good track record of settling the claim in a reasonable timeframe of filing the claim with the company. After all what good is an insurance plan during your lifetime if your beneficiaries are not able to settle the claim with the insurance company within a reasonable time in your absence. However, every convenience nowadays comes for a price. If you look at the data produced by IRDA (Insurance Regulatory and Development Authority) for the year 2009-10, many facts like these become clearer to us. What is claim settlement ratio? In very simple words claim settlement ratio is the number of claims settled for every 100 claims received by the life insurance company. For example if an insurance company has received 100 claims in a year and it has settled 98 claims out of it, then the claim settlement ratio will be 98%. Higher is the claim settlement ratio for the company, the better. Industry average claim settlement ratio If you look at just a comparison between private insurance players and LIC in death claim settlement, it becomes clear that LICs death claim settlement ratio is almost 11% better than the average of all private players taken together.

Insurer

Total claims

Claims Paid

Claims pending Claims repudiated and written back 1.41 7.48 1.93 2.05 7.64 0.75

LIC Private Insurers Total

100 100 100

96.54 84.88 95.25

(Data obtained from IRDA Annual Report 2009-10) While LIC settled 96.54% claims in the year 2009-10, private players settled only 84.88% of the total claims. One needs to see how well established the insurance company is. As the operations of the insurance company get stabilized, their member base and investment base gets stronger. Life insurance is a very capital intensive business with long break even periods. For the year 2009-10, along with LIC another seven insurance companies reported profits which show their operations have stabilised and now these companies are strong enough to handle large number of customers. Although most things look positive for LIC, one fact is that their plans are not very cost competitive. The premiums are one of the highest in the case of LIC. Because of this very fact, many people prefer to go for private insurance covers rather than going for an LIC cover. Since late 2009 with online term plans coming into the market, people can now take insurance cover for a higher amount for very low premiums. Many who do not understand the importance of high death claim settlement ratio or are not aware of it go for these insurance covers. However, there are still a bigger number of customers who believe in investing in insurers who have better claim settlement statistics rather and are ready to pay a higher price for it as well.

LIC scores best in claims settlement during 2010-11 (http://www.business-standard.com/india/news/lic-scores-best-inclaims-settlement-during-2010-11/436579/)

At a time when customer service and satisfaction is becoming the key to success for life insurance companies, the claim repudiation ratio (in case of death claims) has improved over the last financial year. According to data from company sources, the Life Insurance Corporation of India (LIC) still remains the benchmark when it comes to settling death claims. However, major private players are also fast catching up. A repudation ratio is a measure of claims rejected. During 2010-11, LIC improved its repudiation ratio for death claims to 1.09 per cent from 1.21 per cent in the previous year. In the same period, the public sector insurance behemoth settled 97.5 per cent of death claims, whereas claims pending stood at 1.47 per cent. Overall, we have settled 99.6 per cent of the total claims in the last financial year. And 95 per cent of the death claims were settled within 15 days of intimation, said a senior LIC official.

In total, during the 2010-11, LIC has settled around 18.3 million claims amounting to Rs 53,000 crore, which includes survival benefits, maturity and death claims. Of this, Rs 6,000 crore accounted for 721,000 death claims. Among the private players, ICICI Prudential Life was the best performer in terms of claims repudiation ratio, whereas HDFC Lifes claims settlement ratio was the highest, respectively. ICICI Prudentials claims repudiation ratio stood at 2.8 per cent, whereas for HDFC Life it was at 3.97 per cent. During the same time, HDFC Life settled 96.03 per cent of the total death claims, while ICICI Prudential settled 94.4 per cent of claims. Claims pending for HDFC Life and ICICI Prudential stood at 0.61 per cent and 2.6 per cent, respectively. ICICI Prudentials claims repudiation ratio stood at 2.8 per cent, whereas for HDFC Life it was at 3.97 per cent. During the same time, HDFC Life settled 96.03 per cent of the total death claims, while ICICI Prudential settled 94.4 per cent of claims. Claims pending for HDFC Life and ICICI Prudential stood at 0.61 per cent and 2.6 per cent, respectively. Among the established players, the repudiation ratio for SBI Life and Max New York Life worsened to 16.74 and 14.85, respectively. For the smaller or relatively new private life insurance players, the ratio still remains on the higher side. For instance, India First Life, which began operation in 2009, had a repudiation ratio at 9.4 per cent, whereas for IDBI Federal Life which started in 2007, it was 21 per cent.

CLAIMS REPORT
2009-10 ** Claims Claims repudiated settled LIC ICICI Prudential HDFC Life Aviva Life Birla Sun Life India First Life Max New York Life SBI Life IDBI Federal Life 1.21 3.27 4.67 9.75 10.62 7.69 12.31 14.75 23.81 96.53 90.17 91.14 87.11 89.09 53.85 65.51 83.27 49.52 Claims pending 1.41 6.56 4.20 3.14 5.82 38.46 7.14 1.96 26.67 2010-11*** Claims repudiated 1.09 2.80 3.97 4.10 4.99 9.40 14.85 16.74 21.00 Claims settled 97.50 94.40 96.03 87.11* 94.66 90.58 78.01 82.24 65.00 Claims pending 1.47 2.60 0.61 3.14* 0.35 0.03 7.14 1.03 14.00

* Close to year ago figures; ** Irda Figures; *** Unaudited figures

The repudiation ratio improves over a period of time as in a death within two years (early death claims) of the issue of the policy requires investigation. So, for the newer companies the proportion of early death claims always remains high. Hence, the ratio is becomes skewed, said an official at a private life insurance company. Settlement of any insurance claim involves interpretation of a lot of technical conditions generally used by insurers to reject the claims. However, non-early death claims (claims after two years of the issue of the policy) do not mandate any investigation. Hence, the settlement procedure is faster and easier.

Among the established players, the repudiation ratio for SBI Life and Max New York Life worsened to 16.74 and 14.85, respectively. For the smaller or relatively new private life insurance players, the ratio still remains on the higher side. For instance, India First Life, which began operation in 2009, had a repudiation ratio at 9.4 per cent, whereas for IDBI Federal Life which started in 2007, it was 21 per cent.

Detailed analysis of annual claim settlement ratio for individual companies

Data as shown in the chart is obtained from IRDA website as published in their annual report 2009-10. In the chart the insurance companies have been arranged according to their death claim settlement ratio. LIC as seen earlier tops this list. The point to note here is that even between the top two insurers, there is a gap of 5% in their claim settlement ratios. This means that LIC is still much ahead in claim settlement than the rest of the private players. Also, LIC has still the biggest customer base. Total claims received by LIC was 6,77,374 as compared to the next player being Bajaj Allianz receiving only 23,040 for the year 2009-10 and

ICICI prudential following it by a claims figure of 16,057. There is a massive difference between LIC and other players and indicates that LIC still has more than 50% of the customer base as far as life insurance industry is concerned. In order to avoid hassles at the time of claim settlement it is better to declare all information in the proposal form like date of birth, age, medical history, habits correctly. The proposer should not hide any material information at the time of taking the policy. During its claim investigation if the insurer finds out that there was any type of misrepresentation from the policyholder at the time of taking the policy, the insurance company may reject the claim and declare the policy as null and void and forfeit all the premiums. Information published in IRDA website also shows that Aegon Religare settled only 24 claims out of the 50 claims it received in the year 2009-10 ending the year with a claim settlement ratio of 48%. Comparison of premiums between LIC and private insurers One thing that goes in favour of the private insurance companies is the pricing of their products. If we study the premiums charged by private insurance companies for term plans as compared to the premium charged by LIC for its term plan Jeevan Amulya, in some cases the premiums of private life insurers are as less as 50% compared to the premium charged by LIC. So there is a huge disparity in the premiums charged by private insurers and LIC. While LIC still commands a major market share, private insurers are using the low premium bait to woo customers towards them. Even though there are 23 players operating in the market fighting for a share of the customers wallet, due to the huge under penetration of insurance in India and the huge untapped opportunity there is room for everyone to attract new customers rather than competing for each others customers. Conclusion Many people are still very sceptical of buying insurance from private life insurance companies. They would rather go for LIC only. LIC still enjoying the biggest trust factor among people even though the competition around it is very stiff. Death claim settlement ratio is a key factor (apart from the other factors discussed above) that helps people in selecting the right insurance company for buying an insurance cover. However in the end, decision is personal.