Comparing Term Insurance Claim Rejections

by Manshu on March 23, 2011

in Insurance

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.)

 

Rejected as a percentage of new and outstanding

Rejected as a percentage of new and outstanding

(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.

Rejected Claims less than 2 years as a percentage of new and outstanding

Rejected Claims less than 2 years as a percentage of new and outstanding

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.

Proportion of Rejected Claims

Proportion of Rejected Claims

 

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%

 

{ 4 comments… read them below or add one }

Amren March 28, 2013 at 11:44 pm

What about SBI life online Term Plan ????? any suggestion..
my age is 35 yrs and wanna have term plan of 1 Cr for 30 yrs..please suggest good online Term Plan>>??

Reply

Manshu March 29, 2013 at 6:14 am

A lot of these term plans are quite similar and I’m afraid I don’t have much input for you on which one is the better option to buy.

Reply

satish April 15, 2013 at 7:23 pm

HI Manshu,

Kindly update the LIC % Settled value. It’s showing wrong value in this post(77.56%).

Reply

Bhuvan May 29, 2013 at 12:00 pm

Hi Manshu,

Kindly provide the Term Insurance Claim Rejections for FY 12-13. We need to understand how different companies have fared up in terms of claims rejection ration for FY 12-13.

Reply

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