The new rules states that no other information related to death claim payments, other than the number of policies can be a part of an insurance advertisement.
Life insurance companies publish data on their claim settlement ratio every year in their annual reports. But while buying a life insurance policy, should one consider this figure at all and will insurers with high ratios always be the right choice?
The answer to this may not be as straightforward as it appears. An insurer with a high or low settlement ratio today may not always remain in the same range in the future. This is because there are a set of underwriting guidelines which are internal to the company and, therefore, varies among companies which may even be revised by them.
Further, a high settlement ratio means more claims are being paid out which could also mean that the insurance company's underwriting rules are moderate. This practice may bring in sub-standard lives into the insurance pool thereby increasing the overall risk.
Also, the number of claims settled in isolation may not mean much; it has to be seen in context with the total amount of claims settled, total policies in-force etc.
Soon, insurance companies could start advertising their own claims settlement figures which have to follow guidelines set by the insurance regulator. Earlier, insurers don't follow a set format as to how they will present their claims settlement data. The Insurance Regulatory and Development Authority of India (Irdai), had a few months ago, stated that insurers will have to stick to the new advertisement guidelines where they will have to follow a standard practice while communicating death claims data.
To maintain uniformity across the industry, life insurance companies can now only publish annual figures of death claims paid ratios (number of claims paid to number of claims received) based on the number of policies. Illustratively, if an insurer settles a certain number of claims, say, 5,599 in a year out of 6,699 received, then in the advertisement they need to show these figures, not the percentage of claims settled. In this case 83.5 percent.
The circular clearly states that no other information related to death claim payments, other than the number of policies can be a part of an insurance advertisement.
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to know the other restrictions and the boundaries as set by IRDAI.
Now, from a policyholder point of view, how important is the claims settlement?
Is claim ratio enough?
Merely disclosing and advertising annual figures may not be of much use for buyer. The disclosures on claim settlement are silent on the nature of policies - whether they are endowment, unit-linked insurance plans (Ulips), or term insurance plans.
As the medical and financial underwriting of these plans are different, separate disclosures of their claim settlement ratios, especially term insurance plans, could help potential buyers make more informed decisions.
The claims ratio, in itself, may not be sufficient enough to take a call on which insurer to buy your policy from.
Here are few highlights of the individual death claims in 2016-17:
" Claim settlement ratio of the Life Insurance Corporation of India (LIC) was at 98.31 percent as at March 31, 2017 compared to 98.33 percent as at March 31, 2016. The repudiations or rejections have marginally come down to 0.97 percent in 2016-17 compared to the 0.98 percent in previous year.
" For private insurers, settlement ratio had gone up by 2.24 percent at 93.72 percent during the financial year 2016-17 compared to 91.48 percent during the previous year. The repudiations came down to 4.85 percent in the year 2016-17 compared to the 6.67 percent in previous year.
" The industry settlement ratio increased to 97.74 percent in 2016-17 from 97.43 percent in 2015-16 and the repudiation ratio decreased to 1.45 percent compared to the 1.73 percent in 2015-16.
What should you do?
You can definitely take a cue from the claim numbers, but it should not be the only parameter you should look when buying an insurance policy. Instead, whichever insurer you have decided to buy the life insurance policy from, make sure you disclose all the material information about yourself and your family's medical history.
Insurance policies are for the long term and can run over several decades. Claims figures can change in a span of 1-3 years. Being transparent at the time of filling up the application form will help rather than relying on what the insurer claims about it claims record.
