Just 2% from your life Insurance?

After ULIPs fell from grace, traditional plans are selling fast. In another first from Moneylife, Raj Pradhan exposes the terrible returns from traditional plans that customers seem oblivious to

My cousin Roshan was facing a dilemma. He wanted to buy term life insurance; but his father, my uncle, insisted on his buying an endowment or money-back policy—traditional insurance in trade...

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All in a year by IRDA: Mediclaim portability; pension revamped; just a circular on mechanical rejection of claims

IRDA had been in news this year with a slew of changes affecting both the life and general insurance industry. It’s been a tumultuous ride for both—the insurer and insured

The Insurance Regulatory and Development Authority (IRDA) finally launched mediclaim portability in October this year after delaying the initial launch date. Pension products have now been revamped again, after September 2010 new look was rejected by insurers as well as the insured. Despite mechanical rejection of medical claims by some insurers on flimsy technical grounds, IRDA only issued a circular which has hardly made any impact on the ground.

Portability – Mediclaim portability has been on a slow take-off till now. According to Fali Poncha, a veteran of the Indian insurance industry and executive chairman, IRICS insurance broking, “The need for portability is very real and it is a step in the right direction. The real hurdle to making portability a success lies in the fact that the terms and conditions relating to pre-existing diseases (PED) and time-bound exclusions are not common to all insurers. The laid-down time schedule is fraught with practical difficulties.”

No-Claim-Bonus (NCB) allows a policyholder to get an increased sum insured (usually 5%) for a claims-free year without paying additional premium. Portability will be limited to the sum insured (including bonus). Clarity was needed on whether the new insurer will allow bonus sum insured without extra premium. Not addressing this issue will ensure that the new insurer will charge a premium on the bonus sum insured, as well. Consequently, the net effect is that the policyholder loses the real benefit of NCB.

Pension - ‘No-guarantee’ option is not on the table. With a requirement to offer non-zero guarantee, high exposure to debt will continue. The annuity phase of the product will also be from the same insurer. Captive customers for annuity phase may ensure less motivation for insurers to offer best rate.

The annuity rates will be decided at the time of vesting of pension. If at that time another insurer offers better annuity rates, the insured is stuck with existing insurer—literally rest of life. To top if off, annuity in India is taxable which itself is the biggest snag. At the time of vesting, one-third of the corpus can be taken out tax-free and the remaining will now be enforced as annuity. There is no option for taking out the balance after paying tax. Anyone still interested in pension?

Mechanical claims rejection - IRDA has issued a circular to life and non-life companies asking them not to reject claims on technical grounds like a delay in filing. Some insurers including United India Insurance were rejecting claims mechanically based on delay in hospitalisation intimation and claims filing. Many claims continue to get rejected even after IRDA’s circular. With no warning or penalty for specific insurers, will the IRDA circular be taken seriously?  

Cashless mediclaim elusive – Preferred-Provider-Network (PPN) has been created by government insurers to restrict cashless claims at hospitals who agree on the tariff rate for procedures. Government insurers have seen some success in adding high-end Mumbai hospitals like Jaslok and Fortis to its PPN list; however, the majority of big names like Breach Candy, Hinduja and Lilavati remain elusive.

ULIP to Traditional – It’s like jumping from frying pan into fire. With reduced upfront commission in ULIP, intermediaries are pushing traditional products. The acting chairman of LIC was quoted as saying, “In the past two years, we have tried to consciously shift to traditional products. Earlier, we had ULIPs and traditional products in the ratio of 60:40, which has now reversed.”

VIP – Last year it was Universal Life Policy (ULP) that IRDA suddenly discovered was toxic and decided to scrap it after it was in the market for over a year. It found its way back re-christened as Variable Insurance Policy (VIP). LIC Bima Account 1 and 2, SBI Life Flexi Smart Insurance are new VIPs in the market. A VIP worth skipping in your portfolio!

Highest NAV product - Insurance companies Moneylife has interacted with recently are not happy with the IRDA’s hint at scrapping highest NAV products. The hot topic seemed to have cooled down with IRDA still unable to make up its mind. Time will tell if highest NAV survives year 2012.

Online aggregators squeezed – IRDA’s stringent guidelines for comparison websites are seen as a deathblow for likes of PolicyBazaar.com, Myinsuranceclub.com and ApnaPaisa.com. Clamping down on advertising, ratings, endorsements or bestselling insurance products will surely help customers to get unbiased information for making a good buying decision, but restricting the lead generation fee to Rs10 is shutting the business door.

Motor insurance premium rise - In April, IRDA raised premiums for motor third-party liability insurance by up to 65%. The third-party pool has been in severe losses. From April 2012, third-party motor pool will work as a new ‘declined pool’ concept. The end result is that third-party premiums are likely to go up in 2012.

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harish shah

7 years ago

officers at IRDA and PSU insurrer just count to finish their three years terms of posting. Do nothing but go ahead with promotions. Go to PPN Hospital and be prepared to hear courtious words " Our Hospital Is on the List but at present we do not admit patient who wish to avail cashless benifit as we have problems dealing with XYZ TPA" . Who cares for IRDA circular is attitude of United India Insurance Co. Even after three months of notifications the claims are made non payable on flimsy ground and late submission of claim intimation by United India Insurance Co. Ltd.



In Reply to harish shah 7 years ago

Regulations by IRDA are not mandatory for the hospitals to follow.Irda could not be expected to take action against the hospitals in PPN .So there are fundamental disconnect between the medical providers and the Insurers.The contract between hospitals and the TPA/insurers are hardly enforceable.No consumer court ever held hospitals responsible, in a grievance dispute in Health insurance.There is thus a huge hiatus between promise and performance.

IndiaFirst, SUD Life improve claims settlement ratio, LIC wins

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 

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Madhusudan Thakkar

7 years ago

No doubt LIC has highest claim settlement ratio but according to me the real WINNER is ICICIPRU.Against settlement of 97% claim ICICIPRU had settled claim of 95%.Here it is pertinent to note that ICICIPRU is having online term plans
unlike LIC.We all know that rejection of claims in this category is high if we take into consideration claim settlement ratio of Aegon Religare.

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