Published in Mint on 21th February, 2018. Written by Kapil Mehta
I am often asked who the ‘best’ insurers are? I try to dodge that question because the answer requires a detailed analysis of what one is looking for. When Alice in Lewis Carroll’s stories asks which way she should go, the Cheshire Cat wisely replies, “That depends upon where you want to get to.” Insurer selection, however, would have flummoxed the Cheshire Cat because in insurance, even if you know where you want to get to, it is hard to get the data that helps you find your way.
Let’s say that you want an insurer who has the best claims record. For that you must know the claim settlement rates by product, claim payment times, claim complaints, extent of litigation, who wins the legal cases and how often the insurer pays interest on late claim payment. Some of this information is available but much of it is not, or is available in aggregate form. For example, you can get overall claim settlement rates but these are not published by product. Details of litigation are not available though I’m sure an enterprising analyst could go to all the district, state, consumer and ombudsman courts to put this together. There are other relevant areas where no information is available. For example, in the quality of policy placement. This is an important consideration because every single insurance buyer is impacted. The requirement here is to measure items such as clarity of coverage, error-free policy contracts and timely endorsements, but there is no public information on these.
The Insurance Broking Association of India (IBAI), where I am a director, decided to address this lack of synthesized information by developing a robust measure of an insurer’s performance on policyholder-friendly metrics. The focus was on general and health insurers where brokers distribute over 25% of insurance. Life insurers and new insurers without a long track record were excluded from the study. Brokers represent clients through a formal mandate; typically, they work with several insurers and get a privileged view into insurance processes such as placement, grievance handling and claims that are required to evaluate an insurer’s performance. We identified four criteria. Claims and grievance were given the highest weightage of 40%, followed by policyholder and broker orientation, quality of policy placement and domain knowledge. Each criterion was further split up into smaller measures. Overall, 40% of the total score was based on quantitative information from public disclosures and 60% on a broker survey. The survey was introduced to capture feedback on measures where public information was unavailable or not consistently measured across insurers. The design was such that no single measure or survey result could swing the overall outcome. We got responses from 150 brokers and the survey was filled out by their founders, directors or senior executives. The results showed wide variation among insurers, from a high of 88% to a low of 13%. There was strong correlation between the quantitative assessment and survey results.
The top quartile general insurers were recognized and awarded earlier this year. They were, in alphabetical order, Bajaj Allianz, Future Generali, HDFC, ICICI Lombard, Iffco Tokio, New India and Tata AIG. This exercise will be repeated each year to be an additional perspective for the industry and buyers. Not all awards are created equal. I have been on some juries where assessment has been extremely superficial. Readers would do well to consider only those awards seriously that have been peer-reviewed, have a quantitative foundation, do not require payment and are objective. Such awards nudge companies to improve and focus on policyholders. On a separate note, there are some headwinds for the industry coming up. All bank accounts need to be linked to Aadhaar by 31 March 2018 to remain operational. Over the years, the Electronic Clearing Service (ECS) mandate has been used widely by the industry to collect renewal premiums automatically. If these ECS mandates become invalid because of lack of Aadhaar linkage, there could be substantial unintended insurance lapses, which is terrible for policyholders.
The other development that would have significant implication is the introduction of the National Health Protection Scheme. There are many cost estimates but my assessment is that the scheme will cost far more than what is budgeted for. Most likely this scheme will be larger than the entire health insurance industry today. When fully implemented, it will mean that over 10 million more people may want to be hospitalised in private hospitals. Health insurers and hospitals will need to significantly scale-up to participate in this scheme and ensure that they are a part of the government’s implementation plan. The large number of current and proposed public listings suggests that scrutiny of an insurer’s financial performance is likely to increase significantly. The markets will look carefully for the source of profits. In the case of general insurers, this is typically due to investment rather than underwriting. Such scrutiny will put pressure on insurers to increase premiums, which in turn, will impact customers.
Finally, a new chairperson of the Insurance Regulatory Development Authority of India (Irdai) will be announced shortly. Given the highly regulated nature of insurance, all eyes are on North Block.