The Insurance Regulatory and Development Authority of India (IRDAI) recently issued a circular directing life insurance companies to follow a standard practice while communicating death claims data in their advertisements.
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%.
The circular clearly says that no other information related to death claim payments, other than the number of policies can be a part of an insurance advertisement.
The boundaries
IRDAI has also mandated that such figures should be for a full financial year and based on the latest annual report of the regulator or the most recent annual audited figures that the insurer has submitted to IRDAI.
Further, to prevent insurers from clubbing data for individual and group insurance policies, IRDAI has directed them to publish the data separately. Therefore, insurance advertisements for individual products shall only reflect individual death claims paid ratio.
And in the case of advertisements promoting the company's brand without reference to products, then only individual death claims paid ratio is to be used and not the group claims ratio.
Claim information
The claims data, in number and amount, shared by insurers in the annual report are primarily the following:
a) Claims pending at start of the period
b) Claims intimated during the year
c) Total claims for the year (sum of a and b)
d) Claims paid during the year
e) Claims repudiated during the year
f) Claims pending at end of the year
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.
Choosing the right insurance policy should largely depend on its features and suitability. The claims ratio in itself may not be sufficient enough to take a call on which insurer to buy your policy from.
High or low claims settlement ratio: Which is better?
The answer to it may not be as straightforward as it appears. An insurer with a high or a low settlement ratio today may not always remain in the same range in 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 the insurers.
Further, a high settlement ratio means more claims are being paid out which could also ,eam 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.
What should you do?
As a buyer or policyholder, you can definitely take a cue from the claim numbers, but it should not be the only parameter you look when buying an insurance policy. Instead, whichever insurer you have decided to buy 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.
