One good turn deserves another

Honesty is the best policy, and sure enough, there are a number of disgruntled people in India who feel that their insurance policies have offered them anything but that!

Consider the case: W.P No 1521/08 @ Hazera Khatun Vs NIC & Ors in the Guwahati High Court, wherein the petitioner challenged the action of National Insurance Co. Ltd. of repudiating her claim upon the death of her husband, stated to be covered under the Group Personal Insurance Policy taken by Golden Multi Services Club Ltd. from NIC, insuring all members of the club. NIC reasoned that the claim was repudiated on the ground that it was not submitted within the stipulated time period of 90 days. The Guwahati High Court in a landmark decision on March 2, 2010 quashed the repudiation of the insurer and directed NIC to make payments due to the petitioner, Hazera Khatun.

Reciprocal obligation

• Go through the poilicy documents carefully, so that you are clear about what you are being coveted for
• Understand the fine print and be careful about the technical & legal language. Complete all the required paperwork
• Renew your policy before the due date
• For hassle free claim settlement, the proponent while opting for the policy must understand the importance of nomination

The repudiation of the claim and the legal battle that resulted in this instance is not a one of its kind happening. If the statistics available are to be relied on, then in FY’10 alone, approximately seven per cent complaints lodged with the grievance cell of the insurance regulator, Insurance Regulatory & Development Authority (IRDA), related to either non-payment of claims, repudiation of claims or incorrect claim amounts. Surprisingly, the industry says that as far as individual death claims are concerned for the year 2009-10, it has settled 95.24 per cent of the cases and in group death claims, the settlement is 98.9 %. And herein lies the greater irony of tall claims pertaining to customer centricity and service delivery.

When a policyholder, the insured, enters into a contract with an insurer, it is primarily with an anticipation that eventually when the time for settling of claims  comes he/she or his/her family members would not face any problem. This, in simple terms, explains the very concept of Uberrima fidei or utmost good faith – the guiding principle of contracts in the insurance business.

To put things in perspective, the World Insurance Report 2011 states that globally, the claims department spends over $336 billion every year in managing and settling claims. This implies that for every dollar collected in premiums, insurers on an average spend 61 cents on claim settlement. While claim ratios are rising fast, it doesn’t negate the importance of balancing customer satisfaction with improving operational efficiency.

A cursory reading of the FY’10 Annual Report brought out by IRDA reveals the following facts: In 2009-10, life insurance companies settled 0.72 million claims (20%  increase over claims settled in 2008-09) on individual policies with a total payout of  Rs.59.58 billion (24.2% year-on-year rise). But what is worth mentioning is that despite tall claims of settlement, there were some 14,693 cases, which were repudiated. The number of claims pending at the year end was 15,892, out of which 2,180 claims have been pending for more than a year. The grievance cell, too, has 5.2% of the cases relating to non-payments and 1.4% of the cases with respect to repudiation. Going by the available statistics, it is not surprising that many insured get disillusioned when their applications are rejected for reasons, which they feel are not justifiable. Undoubtedly, the policyholder in a claimant’s garb is always the weaker of the two parties and thus, when confronted with complicated financial issues, he/she faces unimaginable mental & physical burden, especially in case of an emotional loss.

As far as the settlement ratio is concerned, public sector insurers are faring better, at least statistically. The claim settlement of LIC is pegged at 96.54%, much higher than its private sector peer HDFC Standard Life, whose claim settlement is 91.14%. The scenario in the group claim settlement is similar with LIC claiming 99.8% of claim settlement, while its nearest rivals in the private domain – IDBI Federal and Star Union Dai-ichi – both having a spotless 100% settlement record.

The insurers, on their part, cite reasons, primarily fraudulent cases and non-disclosure of correct information. While these perspectives cannot be outrightly discarded, it needs to be understood that in a country where insurance penetration is a mere 5.2%, it is imperative that the insurance selling process is made more transparent and educative for customers (a fact to which Shefali Chhachhi, Director Marketing, Max Bupa agrees) to help customers as well as companies. Incidentally, the conflicting challenges that insurance companies face with respect to profitability and customer satisfaction are not related to facing fraudulent claims only. A closer look at the report brings forth the point that a miniscule percentage of health insurance policyholders accounts for huge claim ratios (the incurred claim ratio on health by public sector insurers for FY’10 was 119.85% while that for private sector insurers was 92.22%). Thanks to the price war waged after January 2007, insurance companies offered discounts on premiums without calibrating the risk factors and hence the unusually high claim ratio. In essence, they themselves were ignoring the basic tenet of providing risk cover.

Needless to say, given the reciprocal obligations, both parties must honour the contract in letter and spirit. Else, more writ petitions against insurers (like the one by Hazera Khatun) will only increase the distrust between insurers and customers and seriously hamper the growth of this extremely critical sector in India while it is still in its infancy.