Efficient Claim Management

The death claim settlement ratio of insurance companies ranges between 85.3-99.07 per cent for the year 2018-19, according to IRDA’s annual report 2019. The report exhibits that TATA AIA has the best death claim settlement ratio at 99.07 per cent. Tata AIA, followed by HDFC, Max Life and ICICI Prudential Life with claim settlement ratio of 99.07 per cent, 99.04 per cent, 98.74 per cent and 98.58 per cent stand ahead of LIC (97.79 per cent) in settling individual death claims.

Digging deep into the report, the average claim settlement amount paid by LIC is just around Rs 1.75 lakh whereas it is over Rs 15 lakh by Aegon. New-age life insurance companies like Aegon aggressively sell high sum assured term plans, unlike LIC which has been giving prime importance to the endowment and money-back policies.

Insurance companies operate in a highly competitive environment, therefore, a smooth, speedy, and customer-oriented claim management process is vital for long term survival of an insurer. Claim management is one of the key drivers of the success of an insurer and a core function in insurance operations along with underwriting and policy administration.

Significance and challenges - Customer service experienced during the claim management process is crucial from an insurer's growth perspective. An efficient claim management process with high service standards plays a pivotal role in increasing the profitability of a business and enhancing customer confidence and reliability. Additionally, prompt settlement of death claims builds customer’s trust in the insurer and strengthens the relationship.

The biggest challenge for life insurance companies is to ensure that invalid claims are identified as timely to avoid incurring losses. The other key issues are high operational costs, inconsistent service delivery, poor integration, data inaccuracy, and a threat to data security.

Let the numbers narrate the growth story - During the financial year 2018-19, the life insurance industry registered a profit after tax of Rs 8,435 crore as against Rs 8,511 crore in 2017-18. Moving further, the LIC of India reported a profit after tax of Rs 2,688 crore.

The premium income of the life insurance industry grew at a rate of 10.75 per cent from 2017-18 to 2018-19, with a recorded premium income of Rs 5,08,132 crore during 2018-19. Exploring further, the private sector insurers registered a growth of 21.37 per cent as against LIC which recorded 6.06 per cent growth in premium income.

Single premium products, contributing 32.89 per cent of LIC’s total premium income, continue to play a dominant role for LIC. Whereas they contributed only 18.04 per cent of the total premium income of private insurance companies. The market share of LIC decreased from 69.36 per cent to 66.42 per cent over the period basis total premium income whereas the market share of private insurers has increased from 30.64 per cent to 33.58 per cent.

The growth in premium from Unit-Linked Products (ULIPs) and traditional life insurance products stood at 17.42 per cent and 9.65 per cent respectively, from 2017-18 to 2018-19.

What is an Efficient Claim Management? - An effective claim management process adheres to all the regulations and guidelines, differentiates between genuine and invalid claims, and is fair and responsive. In the year 2018-19, the life insurance companies had settled 8.43 lakh claims on individual policies, 6,372 claims were repudiated, and 3,697 claims were rejected. The total pay-out amount stands Rs 17,365 crore.

Let us dig deep into important aspects of efficient claim management. The claim management process should be speedy, hassle-free, customer-oriented, and data-driven.
It must have a fair governance practice on fraud management irrespective of the fact that fraudulent claims are emanating from within the company or outside the company.

The insurance agents must be trained to inform every customer about the pitfalls in claim settlement in case of misrepresentation of facts in addition to sharing other policy-related information. The concerned insurance agent or customer-facing entity must be prompt in all the communications related to claim settlement.

Conclusion - Life, today, is unimaginable without technology, which is leading the disruption of all the industries. Life insurance companies are increasingly adopting claim management software to run operations efficiently and smoothly. This has enabled insurers to process accurate data only thereby saving their time and skimming the scope of error. This software brings a heap of benefits including reduced cost, fraud detection, and data security.

The claim management process in the life insurance sector has become quite efficient and better in recent years. The effectiveness and efficiency of technology-driven claim management are resulting in faster claims settlement, quicker identification of possible fraud, and lower processing costs.

Article by Pankaj Chauhan (MD & CEO, EPOCH Insurance Brokers)