High benefit amount rejection cause of serious concern
IRDAI’s (Insurance Regulatory and Development Authority of India) annual report 2014-15 shows Life Insurance Corporation of India (LIC) continuing to be the number one life insurance company in low claim rejection. It rejected only 1.15% of death claims. LIC’s benefit amount rejection is 2.06%. It means that where the amount of claim is concerned, the rejection is almost double of rejection of number of death claims. It is obvious that insurers have more scrutiny for high-value claims and smaller amount claims may be easier to get passed. While LIC is still numero uno, with private insurers the difference between death claims rejection versus benefit amount rejection is more than three times. So, it is better to judge the claim rejection ratio with respect to benefit amount rather than only on the number of claims rejected.
In 2013-14, HDFC Life and ICICI Pru Life were in the second and third position for claims rejection (no. of policies) of 4.70% and 4.98%, respectively; the claims rejection (benefit amount) was 9% and 12.73%, respectively. For 2014-15, ICICI Pru Life has fallen to sixth position (5.42%), while HDFC Life (7.24%) ranks at 11th place. Both fare even worse with claims rejection (benefit amount) at 17.25% and 21.13%, respectively. This is a high number compared with other insurers in the same range for the number of policies rejection ratio. It certainly helps LIC keep it top position secure.
As far as fraudulent claims are concerned, the insurer has every right to repudiate the claim. It will be interesting to see the impact on the claim settlement on Section 45 of the Insurance (Amendment) Act which says that a life insurance policy cannot be rejected after three years of being issued. Fraudulent claims for which policy has completed three years will be difficult to reject by insurer. It surely has life insurers worried, but it will help to improve the claims settlement ratio and lower the claims rejection ratio.
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. 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, its ratios would start looking favourable.
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 of an agent. It is imperative that the policyholder fills up the policy form completely and in good faith without the agent filling any policyholder’s personal data.
The ‘claims settlement ratio’ is the number of claims rejected with respect to claims received. The ‘claims repudiated ratio’ is the number of claims refused with respect to claims received. The ‘claims pending ratio’ is the number of claims pending (not settled, nor rejected) with respect to claims received.