Did you consider these things while buying insurance?
Claim settlement ratio is an aggregate of the average of claims made for all products of an insurance company - term, endowment, money back, child plans, retirement plans etc
11.14 IST, Jun 06, 2015 | Dalal Times Bureau
There are many factors that need to be considered while deciding on which insurance to buy.
Some of them are, what the type of insurance is and is it matching the need and objective of the client. Is the premium low, when compared to other product options in the market, so that the customer gets value for money? What is the maturity benefit in the product? What are the returns? Is the insurance coverage adequate to cover the human life value of the customer and what is the claim settlement ratio for the company chosen, compared to other life insurance companies?
One of the best gifts an insured can offer to his family, is insurance, to provide for financial security, and more importantly, a seamless claim settlement to their loved ones.
Imagine, a claim settlement that requires several notarisations from lawyers and original certificates from doctors, and requires the family to run behind professional organisations, and then takes time to settle the amount, or worse, does not settle the claim.
This will create a huge financial setback to the family and leave a bad taste in the minds of the family members, about the purpose of taking insurance itself.
One of our clients, Mittal, lost his father due to an heart attack and his father had several small insurance covers from multiple insurance companies. Unfortunately, his agent had sold him products of multiple companies, without understanding the needs and requirements of the father.
Mittal's mother was a home maker in her fifty's and emotionally and mentally tired of attending to such matters in such a time of grievance.
Mittal, had to go from pillar to post to receive claim amounts from various insurers, who requested for more documents than mentioned in the policy document, for the claim amount to be settled for his mother.
As per IRDA Guidelines Claim Settlement should happen within 30 days of complete documents received by an insurance company.
Does this really happen with all insurance providers? A resounding No!
SO what does claim settlement ratio mean?
It tells us, the total number of death claims settled by the insurance company. The calculation is : total number of death claims received divided by total number of claims settled.
For example if an insurance company has received 500 death claims and settled 450, the claim settlement ratio is 90%.
The higher the claim settlement ratio for an insurance company, the better is it for customers.
In the below illustration, the details of claims paid by private insurance companies and LIC is shown.
The claim settlement ratio of LIC was 98.14% in 13-14. The percentage of claims repudiated or rejected was 1.10%
What is important is also the turnaround time of claim settlement.
The below table is an illustration of the claim settlement ratios of private and public players. In the table, ICICI Prudential Life Insurance has delivered the fastest turnaround time of settlement of claim within 30 days, 91.89% of the time.
Another point to note, is also the consistency of claim payments made by a company over the years. A company that shows a consistently improving claim settlement ratio, is again a matter of selection over a company that shows inconsistency in payment or who's percentage varies widely from year to year.
It is also important to note, the claim settlement ratio, is an aggregate of the average of claims made for all products of an insurance company - term, endowment, money back, child plans, retirement plans etc.
Also, the percentage way of calculation does not portray actually how many claims were rejected in absolute number terms.
For example, if number of claims rejected to the number of claims received is more for a given year, and if the percentage is better, because of a higher base, it will give an inaccurate picture to the customer, since, although the percentage of claim settlement has gone up, the number of claims rejected has also gone up, making the percentage look skewed in favour of one company.
Another point is, if a claim is made within 2 years, Section 45 of the Insurance Act 1938 specifys a detailed investigation is made and the claim can be repudiated on the grounds of misrepresentation of facts.
If certain information is withheld by the customer while filling the application form, like concealment of a serious illness or ailment , then the insurance company will reject the claim on the basis of concealment of facts or misrepresentation of data. In such cases, the insurance company, can refuse payment of sum insured to the family of the diseased member.
The repudiation of claims arising from misrepresentation of facts, again, may not work in favour of the insurance company, since claim was rejected because of wrong doing of the customer and the insurance company was not to blame. But the figures will reflect against the insurance company.
Misrepresentation of facts and concealment of information by the customer is considered a fraud under Sec 25 of the Insurance Act
Some points to note for the customer to ensure claims are settled by the insurance company.
1. Full and correct disclosure of information while filling the application form of insurance.
2. Life Assured should try and fill the form by himself, so that all questions relating to medical conditions are covered accurately and no concealment or false information is provided.
3. The agent must inform the policy holder about early claims and investigation of the same, misrepresentation of facts and how it would be detrimental to the family of the diseased.
4. Agent must also update the family members of the claim process and documents needed.
5. More importantly the life assured must inform the family of where important documents are stored for the family to get hold of the same in case of an eventuality.
In conclusion, a claim settlement ratio, is an indicator of claims settled by an insurer and its consistency over a period must be analysed before considering the insurance company.
Since, insurance is a contract of mutual trust between insurance company and the customer, it is important the customer fulfils his duty of utmost good faith in detailing information to the insurance company.
This article is contributed by Dilshad Billimoria, member of The Financial Planners’ Guild, India and Director,Dilzer Consultants Pvt Ltd (a Sebi-Registered Investment Adviser)
9 Jun 2015