Underwriting and claims settlement are the two most important aspects in the functioning of an insurance company. In the present highly competitive and economically challenging environment, claims settlement can serve as a market differentiator that puts insurance companies at the forefront of industry leadership and innovation.
Claim is a moment of truth as far as an Insurance policy is concerned. It is the culmination of the insurance contract. The expectation of the policyholder is whenever the claim amount has fallen due; the insurer honours the claim and makes the payment of the insured amount at the earliest and with least possible inconvenience.
The efficiency of claim handling is a test of the customer service orientation of an insurer. To be successful, insurers need to improve the operational efficiency of their claim organisations and build an operating model that can minimise claim costs as well as eliminate the unnecessary expenses associated with claims handling.
Implementing effective supporting technology to improve claims management across the organisation is an important step in this direction. However, supporting technology is only one part of a total claim improvement initiative.
Often overlooked are the people and process components of a more holistic improvement initiative, something that packaged solutions are not necessarily positioned to address. Claim has a different impact on the policyholder/ claimant and the insurer. In case of a claimant, the claim amount is the benefit whereas for an insurer it is expenditure.
A claimant would expect the payment of the due amount in time without facing any hardship whereas the insurer would want to pay the claims only after due satisfactory compliance of all the requirements for making the payment in accordance with the policy terms and conditions.
Claim handling is a critical function:
Claim best practices look fantastic when they are mapped on white boards, but often fall short when insurers do not have the ability to execute them. Moreover, each claim settlement process requires a customized approach that takes into consideration the specific characteristics of the claim. A strong case management platform helps insurers integrate legacy improvement assets into claim improvement strategies.
Insurers can use the latest technology to unlock these static tools and achieve functionality that previously was not possible. The information asymmetry in so far as the understanding of the insurer and the policyholder/ claimant and the interpretation of clauses of the insurance contract is one of the main reasons for disputes relating to claims. Delay in settlement of claims creates undue hardship to the claimants who are already reeling under the impact of the loss caused to the subject matter of insurance.
Repudiation of claims either fully or partially makes the claimant feel that the entire exercise of taking an insurance policy was futile and the premium paid was only an item of expenditure without any commensurate benefit.
If the reasons for delay in settlement of claims and the reasons for partial or complete repudiation of claims are not informed to the claimant with clarity by the insurer, the claimant is left with no other option but to raise a dispute. Once a dispute is raised and the same is not resolved or explained with reasons, the policyholder/claimant loses trust in the insurer.
Thus, there is little possibility that the claimant would take/ renew insurance with the insurer, thereby affecting new business or persistence. Further, the negative publicity about the unreasonable rejection of claims also can affect the potential of sourcing new business or renewals by the insurer.
On the part of the insurer, paying off all claims without proper examination can result in a situation where fraudulent claims also get entertained and paid. This would severely impact the financials of the company putting in jeopardy the very solvency of the insurance company. Therefore, the claim handling is a critical function of an insurer, which has to be carried out with diligence and prudence without adversely affecting the customer service.
Impact of mis-selling on claims:
The right case management solution can break down claim processes into an infinite number of sub-claim units, each of which is able to be routed, managed and monitored individually, while still providing insight and control. Adjusters and managers can leverage real-time analytics to get comprehensive views of claim operations any time.
They have the ability to view and re-route work as needed, enabling a dynamic response to complex claims or shifts in work volume. Insurers can use this insight to drill down into specific tasks to understand which processes are working well, and which are not. Complaints on unfair business practices affect the sentiment about the insurance sector in general and life insurance sector in particular.
This would significantly impact the initiatives aimed at enhancing the level of insurance inclusion as measured by indicators such as insurance penetration and insurance density. Increased incidence of mis-selling can adversely impact growth in the insurance industry which in turn would impact the availability of long term funds for economic development from the insurance sector.
Hence, while there is need to assess and eradicate mis-selling from insurance industry, there is also a need to reassure general public that the regulatory framework of life insurance business is sound enough to protect policyholders’ interests and grievances, if any, are capable of being resolved by insurers or settled/ adjudicated by insurance ombudsman or consumer fora.
Insurers have also been taking the issue of misspelling seriously by doing a root cause analysis of mis-selling complaints to identify the major causes and have taken steps to prevent or reduce mis-selling through steps to ascertain suitability of product, place controls on the various channels, tuning it based on the vulnerability of the channel and have a strategy on dealing with complaints of mis-selling.
Insurers are now conducting sales audits of the proposals that satisfy certain vulnerability criteria like Proposals from Senior Citizens, Premium payable not commensurate to the declared sources of income etc. to ensure right selling. Further, every insurer has a Board approved insurance awareness policy containing the strategy and efforts to build awareness among customers. In addition to the action taken by IRDAI based on the examination of complaints by the insurers, Insurers also take up action against the agents or intermediaries in the form of issuing warning letters, terminating employees, filing police complaints and most commonly resorting to claw-back of commission wherever the policies have been cancelled as a consequence of proven mis-selling.
Intermediaries in handling of claims:
Insurers can apply precautionary concepts to track, measure, and report on an infinite number of sub-units under the primary claim event. This drives best practice processes and can be extended to other lines of business; it also gives insurers the flexibility to systematically integrate claim processes that are historically segregated or require manual intervention – a must for insurers trying to contain overall claim costs or bundle new product offerings.
Surveyors and loss assessors in non-life and third party administrators in health insurance are the most important intermediaries who have a significant role in claim handling. Ensuring that these intermediaries function properly is the most critical to the discharge of claim related functions by insurers. Surveyors and loss assessors are appointed by the insurer for surveying and assessing the loss caused when a claim is reported. The report is required to be furnished to the insurer. The insurer decides upon the claim and may use the report of the surveyors and loss assessors but is not bound by it.
The timeliness in appointment and conduct of survey and furnishing a report, the professionalism displayed in their functioning and the quality of the report determines the speed and quality of settlement of claims by insurers. In case of health insurance, Third Party Administrators are the most important intermediaries handling policyholder servicing issues. Providing of cashless facility and settlement of reimbursement claims is facilitated by TPAs. The professionalism in conducting both these functions determines the smoothness of claim handling by insurers.
Redressal of claims related grievances:
General insurers rely heavily on claim organisations to maintain high customer satisfaction, minimise risk and loss exposure, as well as delivering strong operating results. These are no small tasks, especially when one considers the unique challenge that a claim organisation faces: when customers need its services, the organisation has only one chance to deliver. One negative experience reaches well beyond a complaint to a neighbour nowadays. Once a claim has been unduly delayed or repudiated by the insurer, there is a cause of complaint.
The claimant takes up the matter first with the insurer. All the insurers have put in place internal mechanisms to deal with such grievances and resolve them. The resolution of claim related complaints also generally includes review of the decision on claims by a Committee. After review, the decision on the claim is conveyed to the complainant. Once the complaint is not internally redressed, the claimant is forced to seek adjudication of the dispute.
For this purpose, he may approach an insurance ombudsman, consumer forum or a civil court and later take it through the appellate channels if redress is not to his satisfaction. The statistics on claim related grievances indicate that in the Non-Life Sector, claim related complaints constitute a major proportion to the total complaints as compared to the life insurance sector. The data relating to claim related complaints as obtained from the Integrated Grievance Management System, is as follows:
| Year | No. of Complaints | % Increase/Decrease Compared to Last Year | Total Complaints | % of Complaints Related to Total Complaints |
|---|
| 2013-14 | 27,409 | (-) 8.77% | 63,335 | 43.28% |
| 2014-15 | 26,467 | (-) 3.43% | 60,688 | 43.61% |
| 2015-16 | 26,480 | 0.05% | 59,083 | 44.82% |
| 2016-17 | 27,637 | 4.37% | 52,104 | 53.04% |
Source: https://www.irdai.gov.in and IRDAI Annual Reports
Claim related complaints constitute nearly 43- 53 % of general Insurance complaints. This clearly shows that claim handling is a serious customer service issue in the general insurance industry, which needs immediate attention. There has been a general reduction of claim related complaints life insurance claims and in respect of general Insurance, there is an increase of about 4% compared to the previous year. While the volume of complaints in relation to the total number of claims is very small, the problems faced by the complainants cannot be wished away given the inconvenience caused to them.
Framework for expeditious claim disposal:
An insurer can now face scrutiny from an entire social network. Increasingly, insurers are striving to achieve better operational efficiencies while simultaneously maintaining or improving claimants experience. While this tenet holds true for most insurers, back-office claim units are not necessarily equipped with systems they need to ensure satisfaction.
Claim management functions have a direct impact on an insurer’s expense and combined ratio; they must balance costs against service carefully and still deliver every time. More and more, the strategy to attract and retain customers includes tactical plans for tailoring the claimant’s experience. IRDA (Protection of Policyholders’ Interest) Regulations, 2002 constitutes the regulatory framework for the protection of policyholders’ interests.
In terms of Regulation 5, every insurer should have in place proper procedures and effective mechanisms to address complaints and grievances of policyholders efficiently and with speed. Regulation 8 and 9 deals with claims procedure in respect of life insurance and general insurance policy respectively. IGMS is the regulatory framework and institutional arrangement for processing claims expeditiously and resolving grievances relating to claims. The major claim related complaints as per IGMS are as follows:
1. Insurer not disposing of the claim.
2. Difference between the amount claimed and the amount settled by the Insurer
3. Insurer reduced the quantum of claim without providing proper reasons.
4. Insurer failing to offer settlement of claim after receipt of survey report.
5. Delay on the part of TPA to arrange claim Reimbursement
Insurers can eliminate misinterpretation and manual work arounds by using intent-driven service experience that dynamically applies best practices at each interaction. This approach can be leveraged to anticipate a policyholder’s needs, while addressing concerns raised via web, phone or email. Imagine the power of being able to anticipate and respond to a claimant’s needs before they ask the question (or to dynamically assign work to a glazier when the customer provides notice of loss). Insurers themselves also take several steps for better claims handling.
The steps include giving the claim related documents and the list of documents to be submitted along with the policy document itself, having a claim review committee headed by independent persons of repute from the industry / judiciary. The monitoring, supervision and constant interaction with the intermediaries like surveyors/loss assessors, TPAs etc. also enables these intermediaries to perform their responsibilities in accordance with regulations issued by IRDA and the Code of Conduct specified for them. Insurers have to strictly follow the Turnaround Time (TAT) for claims related services as per the Regulations, which is as follow:
| Sl. No. | Claim Service | Turnaround Time |
|---|
| 1 | Surveyor appointment | 72 hours |
| 2 | Survey report submission | 30 days |
| 3 | Insurer seeking addendum report | 15 days |
| 4 | Additional report submission | 3 weeks |
| 5 | Offer of settlement/rejection of claim after receiving 1st/addendum survey report | 30 days |
| 6 | Payment after acceptance of offer of settlement | 7 days |
Claims and litigation
The basic principle on which insurance operates is ‘uberrima fides’ i.e. principle of utmost good faith. The good faith is applicable equally to insured as well as the insurer. The insured gives all the information required in the proposal form and the insurer has to give the information about the products like terms, conditions, warranties and exclusions in documents of offer like prospectus, brochure, advertisement etc. and also make them part of the policy document. The fine print of insurance policy and the legalese in the wording of policy terms and conditions makes it an unequal bargain from the customer’s point of view.
Since the insurer knows only those things about the insured and the risk as is disclosed by him in the proposal, any failure to disclose renders the position of insurer difficult. The insured has chosen to buy the insurance product and is presumed to have satisfied himself about the product as the principle of ‘caveat emptor’ or ‘buyer beware’ applies to insurance as well. However, considering the several terms and conditions in the insurance contract which are presented in highly technical legal terms, literal application of the principle to largely financially illiterate insured persons would shift the balance heavily in the insurer’s favour in case of any dispute in enforcing the obligations under the insurance contract.
As the decision to underwrite a policy is supposed to be taken by the insurer after obtaining all information necessary for understanding the risk and the policy terms and conditions being standard forms drafted by the insurer, while interpreting the clauses of contract, any unclear term is interpreted in favour of the insured and against the insurer. The interplay of these principles provides reason for disputes in insurance.
In order to provide a separate forum for dealing with cases relating to third party claims in case of motor accidents, the Motor Accident Claims Tribunals have been set up under the Motor Vehicles Act. Several of these Tribunals are in operation across the country. The number of cases pending before these Tribunals is huge and the time taken for disposal owing to the involved processes is substantial.
There is no finality to the decisions as cases where the claimants feel that the compensation ordered is too low, they go for Appeal to the High Court and where the insurer feels that the compensation ordered is too high, the insurer goes on an Appeal leading to increased number of appeals before High Court and if further appealed against, before the Supreme Court. The difficulty in resolving disputes about motor accidents arise from the onerous task of assessing the value of human life lost in the accident and there can always be divergence of views of either party leading to litigation and escalations in the form of appeals.
In addition to these, disputes regarding claims in other non-life insurance policies, which are not on personal lines, are taken up before Civil Courts, where a long time is taken in deciding the matter, owing to the involved processes. Even after a decision of the Court is received, there is the option of Appeal leading to delay in finality of the decision.
| Court / Forum | Life (No. of Cases) | Non-life (No. of Cases) |
|---|
| Consumer Forum |
| District Level | 15,270 | 50,723 |
| State Level | 5,088 | 19,684 |
| National Level | 299 | 2,352 |
| Civil Court | 8,874 | 6,933 |
| High Court | 156 | 2,770 |
| Supreme Court | 9 | 963 |
| MACT | NA | 889,239 |
| Related Cases |
| State Level | NA | 180,400 |
| National Level | NA | 557 |
Procedural awareness:
Most claimants are not aware of the claim procedure. A positive approach to claim management provides insurers with the flexibility to offer tailored solutions to their customers and better align customer needs with business objectives. This improvement ultimately boosts key performance indicators, which will undoubtedly impact operating results in a positive way. Insurance awareness can help persons taking insurance to be more aware about the nuances of insurance, what to disclose and what to look for in an insurance product, how to understand the insurance product and comprehend the terms, conditions, exclusions and warranties in the insurance policy.
When this meeting of minds of the insurer and the policyholder/claimant about mutual rights and obligations is there, disputes warranting litigation would not arise. In non-life insurance, underwriting includes risk assessment. Therefore, suggesting the suitable insurance policy and also mechanisms of mitigating risks can be an important service provided by the insurer to the policyholder.
Building insurance awareness and bringing in more transparency in policy terms and conditions through simplification of language can help in interpretational problems in claim handling, avoiding an important reason for a lot of litigation in claims. Insurers should have proper systems in place for quick and proper handling of claims. Providing a reasoned and timely decision about the claim can help mitigate the agony of the claimant in approaching various channels only to understand why there is a delay and what is the reason for repudiation of claim in full or in part. A suitable mechanism at insurer’s level to ensure that this information would be provided promptly would reduce the number of complaints relating to claims.
Efficiency is much higher in in-house settlement of claims-cashless or reimbursement. Dealing directly with the insurer and its direct control over the service level and settlement gives customers a much higher comfort level. Disputes in insurance are basically disputes in contract and have to be taken up with civil court. To provide scope for settling the disputes through alternate dispute resolution mechanisms, the institution of Insurance Ombudsman has been created by Government of India under the Redressal of Public Grievances Rules, 1998.
However, disputes on personal lines of insurance on only 5 grounds of complaint and where compensation sought is less than Rs. 20 lakhs can be taken up with the Insurance Ombudsman. Absence of mechanisms of appeal against Awards or for enforcement of Awards make the legal recourse the only alternative for persons or insurers aggrieved by unsatisfactory Awards. In case of commercial lines of insurance, while resolution through Arbitration and Conciliation is provided for, the Arbitration Awards do not provide finality leaving room for litigation even after arbitration.
Further arbitration clause is provided in general for partial repudiation cases of claim and not in cases of denial of claim. With the increasing publicity about the recourse to Consumer Fora under the Consumer Protection Act, 1986, the volume of cases before Consumer Fora on matters of insurance has also been increasing with more and more people taking recourse to Consumer Fora alleging deficiency of service.
The delay in resolving a case before the District Forum and the several years taken in disposal of appeals by State Forum and National Forum because of the huge volume of cases pending before these Fora have rendered the recourse to Consumer Fora ineffective in the expeditious resolution of insurance related disputes.
Therefore, over the years, insurance has grown to be not only a subject matter of solicitation but also a fertile ground for litigation. A straight jacketed formula is difficult to implement. However, there is sufficient scope of settlement of disputes at the earliest to save the financial burden. After all, claim settlement is the reason for the existence of insurers and a better settlement record puts insurance companies at the forefront of industry leadership and innovation.
