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Published in Mint on 20th September,2017. Written by Kapil Mehta.

Never judge a book by its cover. Never judge insurance just by price. Equally important is an insurer’s claims payment and complaint handling ability. Every claim or complaint is different so it is impossible to predict an insurer’s specific response. But this is one situation where past performance is an indicator of the future.

Over the years, I have seen hundreds of claims across business lines and there are many differences in the way insurers react when faced with a claim. Several will move fast and close out the matter with a quick decision. In some others, the tendency may be to find fault. A few claims require a surveyor to make an assessment. In theory, the surveyor should make a completely independent recommendation of loss. In reality there is a bias to take the insurer’s perspective.
The ideal insurer handles many claims, decides fast, in favour of claimants and still turns out an underwriting profit. This is somewhat like the description of highest performance at a company where I once worked—the employee must have the “ability to leap over tall buildings in one bound”. An unattainable gold standard. However, at the very least, buyers must look into available claims information to determine where an insurer falls against this gold standard.
An insurance company that handles many claims is more likely to have good processes in place. Such processes are important because claims come in large numbers with considerable diversity, and poor systems can lead to wrong decisions. Claim numbers are large and increasing. In fiscal 2016, insurers handled over 22,000 health claims, 6,200 death claims, and 4,000 third party motor claims every single day. Does this mean that insurers handling few claims should not be selected? I would say that unless you are an informed buyer, there may be safety in numbers.
Turning claims around fast is not easy. Much work needs to be done before a decision can be taken. For example, in motor or property damage, a surveyor has to be appointed within a day or two. In health, accident or death, the claim papers must be speedily assessed and a thoughtful response sent to customers. Often, the insurer may have to settle a cashless claim within an hour. This quick response is important because, in the initial period, the claimant is in distress and looking for fast solutions. In many commercial cases, as time passes, it becomes difficult to assess the claim. For one public-sector insurer, over one-third of claims related to fire and liability took over 6 months to settle. For a large private sector insurer, over 20% of the outstanding claims were over a year old. To be fair, the delay may be because the claimant has not furnished all the information. Still, it is a warning if these numbers are too high.
Claim settlement rates indicate whether decisions favour policyholders. These are expressed in terms of number of policies and also in terms of value. I find the number of policies metric more relevant to buyers because this gives a better feel of how small claims are managed. Claim settlement has many definitions and you should look at these carefully. The best definition takes positive claims decision on a base of total decisions taken. Finally, an underwriting profit is generated when total claims are less than total premium. If an insurer continuously suffers losses, it will come under pressure to cut claims either in terms of the claim acceptance itself or in terms of the claim value paid.
Complaining is never easy, particularly to insurers. When I think about grievance cells, I visualize the fierce looking commando at the metro station at M.G. Road, Gurgaon. He is hidden behind a metal bunker, only machine gun and eyes visible. Handwritten on the enclosure is a sign that says “No Enquiries here please”. Quite unwelcoming. The performance of policyholder complaints can be determined by the number of complaints per 10,000 policies and its aging. The differences among insurers are large, the best being 2-3 times the average.
All of this information is readily available from several sources such as the annual reports of Insurance Regulatory and Development Authority of India (Irdai), statistical updates, public disclosures of insurers on their websites, and a handbook published by the Insurance Broking Association of India. However, getting to the information you want requires filing through all the paper and, sometimes, calculating numbers yourself to ferret out the right metrics.
There are some steps insurers and the regulator can consider to make claims and servicing-related disclosures more customer friendly and accessible. The first would be to publish more relevant measures. I, for one, would like to see claims data by product rather than in aggregate. This is particularly relevant for health insurance where claims ratios vary significantly by product. Information regarding litigation underway and the proportion of cases won by the insurer should also be shared. This measures the quality of an insurer’s claims decision. If the claims processes work well, the insurer should have a relatively high legal case win ratio. The second step is to make sure that the definitions are accurate and comprehensive. Current rules require only written complaints to be considered for reporting. This should be broadened to include verbal complaints as well. Third, published information must comply with the definitions. While preparing the Mint SecureNow Mediclaim Ratings, we found several instances where the information published in disclosures was incorrect. Finally, and this would be the pièce de résistance, the claims information should be made to stand out in documentation shared with customers.