Claims payment record of the Private Insurance Companies

As we know, there are 20 odd private life insurance companies in India, and there is LIC which is a public sector company. LIC is the 800 pound gorilla, managing to hold on to about 75% market share even 10 years after private companies have been allowed into the life insurance space. The private life insurance companies position themselves on being more customer friendly, wider array of products etc while LIC holds on to its positioning of trust, experience and government backing. One of the key parameters on which to judge a life insurance company is their claims payment record. At the same time, we must note that given that life insurance has become more of  a savings and investment product, the returns that they provide are perhaps more important than claims payout ratios. Nevertheless, claims record is definitely not a variable to be ignored.

 
A table illustrating the claims rejection percentages of the top life insurance companies in 2009-10 is presented below:

Life Insurance Company	Claims rejection ratio (%)
LIC	1.21%
Aviva	9.75%
Bajaj Allianz	5.2%
Birla SunLife	10.62%
HDFC Life	4.67%
ICICI Prudential	3.27%
ING Vysya	4.26%
Kotak Mahindra	4.29%
Max New York Life	12.31%
MetLife	5.94%
Reliance Life	7.05%
SBI Life	14.75%
Tata AIG	12.3%

An important observation from the above table is that the claims rejection ratio of LIC is the lowest, thus implying that their record is the best as far as claims payment is concerned. At the same time, the very high percentage of claims rejection of SBI Life and Max  New York Life surely comes in as a surprise.

It must however be noted once again that in Unit Linked products that life insurance companies promote aggressively (or at least was promoting till Sep 2010) , the returns earned on the fund is perhaps a more important variable than the claims payment (or rejection) ratio. However, for non life insurance companies, which offer pure protection/insurance products with no savings or investment component, claims payment is the crucial variable along with the speed of processing of claims.

Let us now look at the incurred claims ratios of the non life insurance companies:

Non Life Insurance Company	Incurred claims ratio
New India Assurance	89%
Oriental Insurance	99.69%
United India Insurance	78.62%
National Insurance	99.16%
Royal Sundaram	68.95%
Reliance  General Insurance	77.3%
Iffco Tokio Insurance	83.44%
Tata AIG	60.54%
ICICI Lombard	85.35%
Bajaj Allianz	71.9%
HDFC Ergo	80.73%
Bharti Axa	104%%

One data point that stands out from above is that Tata AIG General Insurance seems to be sourcing the best quality business from the underwriting point of view, whereas the claims payment ratio of Bharti Axa seems to be quite high. Alo,the claims payment ratio of the public insurers, at an overall level, is higher than that of the private non life insurers.



IRDA bans Credit Default Insurance

Credit Insurance Plans have been put into a complete ban by IRDA as it was being practiced rampantly by some non-life insurers. Credit Insurance is a kind of cover or guarantee to the lender against payment default by borrowers. IRDA has ordered all general insurers to stop selling credit insurance plans until any further detailed notice is issued by them in this regard.

Since only a smallish number of loans carry credit risk protection, the decision is unlikely to increase the total credit risk of banks. The Authority has also asked for details of total exposure of the insurer under the credit insurance plans issued by them to the banks offering credit facility to the debtors. The credit insurance that is being marketed by the several insurers is better termed as credit default insurance. It’s basically a security cover which provides protection to the borrower of a loan against the inability to repay the loan.

A recent case of credit insurance cover which resulted in a claim is that of the state-owned insurer Oriental Insurance Company selling such a cover to Paramount Airlines. The insurer provided cover to the airline’s lenders from different branches to the tune of INR 200 crores. Several state-owned lenders have an exposure to the company, which along with other troubled airlines are trying to restructure it’s debt.

Recently, some scam also came into limelight wherein unscrupulous brokers were conniving with borrowers. The broker armed with a letter from a international reinsurer saying it is willing to provide reinsurance underwriting support, along with the borrower would approach an insurance company for credit insurance cover. Reinsurance support is similar to loan syndication where deep-pocketed underwriters share the credit risk. When there used to be a claim, the insurance company discovered there were problems with the technicalities in the contract which allowed the international reinsurer to escape liability and the local insurer was left with the claim.

When compared, credit insurance is quite similar to credit default swaps which earlier brought down the international insurer AIG. Get more info and also compare insurance quotes.