A few days ago I had posted a chart showing how the claims settlement ratio looks like in life insurance in India.

LiC was at the top with about 97% and some of the newer firms were at the bottom at 50%. Of course it was a play on numbers and for the common man really difficult to understand. If I were to legislate understanding insurance before buying, I would suggest a PhD in statistics, or a degree in acturial science!

The numbers favor LiC so overwhelmingly because claims seem to include maturity claims too. In the repudiation of claims PERHAPS the maturity claims have not been included in the numerator and the denominator. However I do not know for sure. 2 large life insurance companies contradicted themselves when I asked them what goes to the numerator and what goes to the denominator – and I was talking to SENIOR people reporting to the CEO.

Life insurance companies have a very high rate of rejection in the ‘early claims’ – so if there is a claim made within 2 years of taking the policy, there is a far greater chance of it being rejected. Unfortunately I could not find the break up of ‘early claims’ and ‘normal claims’. Now think of companies that are 4-5 years old – fairly obvious they are getting ONLY early claims, so numbers being put out without this break up is FRAUD.

Unfortunately IRDA has not defined the ratio’s as a result the numbers are not strictly comparable. The formulae for the ratios are given below

Claims Settled Ratio = ( No of claims settled/Total No of claims registered) * 100

Claims Repudiated = ( No of claims repudiated/ Total no of claims registered) * 100

Claims Pending = ( No of Claims pending/ Total no of claims registered) * 100

The total of all the three ratios is 100%

Including pension claims and maturity claims in the numerator and denominator will change the ratios dramatically…correct?

Why cannot the regulator publish the absolute numbers along with the ratios? Hmmmm back to the original statement – ‘the regulator speaks the language of the most powerful player….’

Should also the value not be published? Let us say a small company has paid one claim of Rs. 1 crore and has repudiated 5 claims of Rs. 2 lakhs, the ratio is likely to say 20% as  settled! In terms of value, obviously the answer is much, much different.

Just think about it…..numbers do not lie, but liars find a way to lie using numbers!!

Just because you see LiC has the best ratios it does not mean ANYTHING….just a thought though….!!

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  1. When I saw this post, I remembered a line from a medical TV show I was watching recently. It went “To an individual statistics mean nothing”.
    For an individual what matters is that whether any of the major events in life went in-favour of him or against him.

  2. Apt post!

    Brings another wonderful line to mind…

    “Statistics are like Bikinis. What they reveal is Suggestive but what they CONCEAL is Vital.”

    Bang on, Subra Ji.

  3. One Fine Day and Agent did come to me with this chart and persuaded me to Buy the Top of the chart insurer’s policy… I told him Ranking/Charts don’t mean anything to me … My Money means a lot to me 🙂 he went back disappointed.

  4. I would like to see the stats for term policy claims. Guess this is the area where the rejections would be maximum given the low premium with huge sum assured figures.

  5. i agree with the value part – one can settle 99 claims of 1lac & reject 1 claim of 1cr & still appear to be an angel!!!

  6. Lot of misselling of products by LIC and still they were able to pretend themselves as Number One!!!

    During 2007 still I remember people chased LIC Money Plus product but year after they noticed they invested in wrong product.

  7. I think the following might be a good idea if IRDA imposes (Not sure if possible)

    1. Advise companies that issuance of insurance should be stringent – like do proper check ups verification etc and present the quote

    2. No matter what, if a person die (like produced the death certificate) , verify the certificate (if original or not) and settle the claim.

    3. If the certificate is duplicate or fraud, the verifying officer from insurance should be held responsible. He should visit the necessary offices and verify the certificate etc…

    4. If the Dr issues fraud certificate, he/she should be held responsible

  8. @Ravindra LIC do not pretend, actually they are number one !!!

    And once someone is at number one, they will use all wrong doings to stay at number one. And LIC is also doing this.
    What do yoo think, if instead of LIC if private insurance company was at top ? They will also use same game plan (may be worst) and show wrong stats and fool peoples. We have to safe guard our own money.

    If common man can earn money , fight in office to get more bonus/hike, play dirty politics in office to get few extra bucks, then they should also put some extra effort to invest properly.
    As its their hard earned money. Fools money is invited every where.

    I agree with Subra that bother for “how the stats are created”.
    Check what is good for you and go for that. All insurance companies are FOR-PROFIT organization and not for charity.

    I still feel due to very very low financial literacy in India we see lot of mis-buying.
    Its very sad to see peoples earning 10+ lacs salary but signing blindly on investment papers when agent do cross mark and say “Sir please sign here”. No one tries to go though the terms and condition. Everyone is bothered about saving taxes.

    I think i got long comment !!!

  9. If I read the IRDA annual report and if what is written follows the norms of common sense (a big IF perhaps?!) then this is what I infer:

    Total no of death claims: 8.51 lakh (851534 to be exact for all insurers)
    Maturity claims: > 50 lakh
    Survival benefits: >135 lakh

    no of death claims LIC addressed: 7.39 lakh (739502)
    no of death claims paid by LIC: 7.17 lakh (717529)
    So the death claim settlement ratio is 0.97 or 97%

    ref: pages 385, 292 (in the pdf file)
    The IRDA report does not have exact numbers for non-death settlements. Where it gives percentages it clearly says it is for death settlement.

  10. Maturity claims: > 50 lakh
    Survival benefits: >135 lakh

    These also refer no of policies.

    ps. call me illogical but I am not inclined to trust a company which settles only 1 of 6 claims received irrespective of the amounts settled or repudiated.

    Reasons for repudiation are more important. If the annual report can state this many no of polices were repudiated because if misinformation etc. then that might (only might) a difference.

  11. Vanga Rajendra Prasad

    NICE Comment and true
    ‘the regulator speaks the language of the most powerful player….’

  12. Vanga Rajendra Prasad

    Generally, LIC does not encourage Term plans. They sell endowment policies more. Hence their settlement ratio is very good. To know the real character of any insurance co, we need to see the claim settlement ratio of insurance cos in respect of term plans where claim amount will be more.

  13. Sir,

    There is a proposal to amend sec 45 of the insurance act by the insurance amendment bill 2008..
    The amended section will be that no insurance policy can be repudiated after 3 years for any reason including fraud…
    My question is if this bill is approved by the parliament, will the rule be applicable to all the existing policies or to only those policies taken after the law is passed.
    There cant be two variations of the law for the same section isn’t it?

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