Comparing Term Insurance Claim Rejections

A few days ago I posted the premiums charged by different term insurance companies, and as a follow up to that post I shared the claim settlement data of some insurers last week.

Today I’m going to share the claim settlement ratio of all 23 life insurance companies in India for the December 2010 quarter. Rejections are simply claims that the insurance company has refused to pay, and lower the rejection – better it is for you.

This is very interesting data, and the one thing that jumps out at you is the low rejections by LIC.

Here is the first chart which shows the percentage of claims rejected by all the insurance companies for the December 2010 quarter. (Exceptions in time period are noted in the last table which has the raw data.)

 

(click for larger image)

Now, when I looked at this two questions came to my mind:

1. How much difference does the relative volume make to these numbers?

2. Are these numbers skewed because of the 2 year rule?

Let’s think about the question of relative volume first. The new plus outstanding claims of Religare was 47 for that period, so even if they rejected 2 claims that would be a rejection rate of close to 5%; that they rejected 20 doesn’t exactly inspire confidence, but you can easily see why this number can’t be compared with LIC which has about 2.3 lac policies for that period.

The 2 year rule is that insurance companies can’t reject policies that are older than 2 years unless they can prove fraud. Loney – who is easily the most prolific commenter here has dug up the relevant act as well, and here is how it quotes:

Section 45 of Insurance Act, 1938 states: In accordance with Section 45 of Insurance Act, 1938, no policy of life insurance shall, after the expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal of insurance or any report of a medical officer, or a referee, or a friend of the insured, or in any other document leading to the
issue of the policy, was inaccurate or false, unless the insurer shows that such statements was on material factor or suppressed facts which it was material to disclose and that it was fraudulently made by the policyholder and that the policyholder knew at the time of making that the statement was false or that it suppressed facts which it was material to disclose.

So, are these rejections influenced by the fact that some insurers have been around for much longer,  and most of their claims are from policies that are older than 2 years.

So, let’s look at the data only for rejected claims that are less than 2 years old across life insurers.

The numbers don’t seem to change much, and finally let’s take a look at the ratio of claim rejections between claims that are more than 2 years old and less than 2 years old.

 

As expected, the claims that are less than 2 years old are rejected more often than claims that are older than 2 years, and obviously that will weigh on some of the newer insurers.

However, no matter what way I look at it LIC’s low claim rejections jump out at me. That they are expensive when compared with others makes the choice of a term plan difficult, but this is certainly something worth keeping in mind – especially for people who smoke socially or have minor health problems that can later become a cause for denial of your claim if not declared properly.

I’m enclosing the raw data in this table below, so you can use it if you want, and the sources are the same as mentioned in my earlier post, so I’m not pasting those ugly links again.

S.No.	Insurer	Claims O/S	New Claims	Claim settled	Claims rej	Less 2 y	Greater 2 y	% Rej	% Rej less 2	% Rej greater 2	% Settled
1	Aegon Religare	22	27	13	20	20	0	40.82%	40.82%	0.00%	26.53%
2	Aviva India	0	532	469	63	42	21	11.84%	7.89%	3.95%	88.16%
3	Bajaj Allianz Life Ins	2,548	6,485	6,268	465	374	91	5.15%	4.14%	1.01%	69.39%
4	Bharti AXA Life Insurance	127	222	168	24	23	1	6.88%	6.59%	0.29%	48.14%
5	Birla Sunlife	173	3,113	3,029	146	142	4	4.44%	4.32%	0.12%	92.18%
6	Canara HSBC OBC Life Ins	74	72	50	11	11	0	7.53%	7.53%	0.00%	34.25%
7	DLF Pramerica	14	17	6	6	6	0	19.35%	19.35%	0.00%	19.35%
8	Future Generali	2	230	162	51	51	0	21.98%	21.98%	0.00%	69.83%
9	HDFC Life	208	1,196	1,139	40	35	5	2.85%	2.49%	0.36%	81.13%
10	ICICI Prudential (Full year)	901	15,605	14,862	554	498	56	3.36%	3.02%	0.34%	90.04%
11	IDBI Fortis	70	105	75	19	19	0	10.86%	10.86%	0.00%	42.86%
12	India Life (for 31st March 2011)	0	13	7	1	1	0	7.69%	7.69%	0.00%	53.85%
13	ING Life	112	1,550	1,462	58	54	4	3.49%	3.25%	0.24%	87.97%
14	Kotak Life	411	631	627	33	27	6	3.17%	2.59%	0.58%	60.17%
15	Max New York	707	1913	1669	248	221	27	9.47%	8.44%	1.03%	63.70%
16	Met Life	206	3562	3150	98	87	11	2.60%	2.31%	0.29%	83.60%
17	Reliance Life	957	4,025	3,272	256	251	5	5.14%	5.04%	0.10%	65.68%
18	Sahara Life (Sep 2010)	281	233	156	70	65	5	13.62%	12.65%	0.97%	30.35%
19	SBI Life	685	5,745	4,622	894	484	410	13.90%	7.53%	6.38%	71.88%
20	Shriram Life (June 2010)	475	212	197	138	127	11	20.09%	18.49%	1.60%	28.68%
21	Star Union Daichi	22	304	218	4	4	0	1.23%	1.23%	0.00%	66.87%
22	Tata AIG	26	883	702	152	136	16	16.72%	14.96%	1.76%	77.23%
23	LIC	53,765	181,165	182,211	506	443	63	0.22%	0.19%	0.03%	77.56%

 

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