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Editorial Board:C.S.RaoP.A. BalasubramanianS.V. MonyK.N. BhandariA.P. KurianNick TaketAshvin ParekhNimish ParekhHasmukh ShahA.K. Venkat SubramaniamProf. R.Vaidyanathan
Editor:U. Jawaharlal
Hindi Correspondent:Sanjeev Kumar Jain
Design concept & Production:Imageads Services Private Limited
Printed by P. Narendra andpublished by C.S.Rao on behalf ofInsurance Regulatory and Development Authority.
Editor: U. Jawaharlal
Printed at Pragati Offset Pvt. Ltd.17, Red Hills, Hyderabad 500 004and published fromParisrama Bhavanam, III Floor5-9-58/B, Basheer BaghHyderabad 500 004Phone: 5582 0964, 5578 9768Fax: 91-040-5582 3334e-mail: [email protected]
© 2006 Insurance Regulatory and Development Authority.Please reproduce with due permission.Unless explicitly stated the information and views published inthis Journal may not be construed as those of the InsuranceRegulatory and Development Authority.
C.S.RAO
Claims Management has always been the mostimportant function of an insurer. It has to behandled delicately as the policyholders tend to lookat any delay as a breach of contract. The insurer,however, has to ensure that only genuine claimsget the eventual nod so that fraudulent tendenciesof potential tricksters are arrested. This is veryessential for the success of the industry which islargely vulnerable to frauds.
It needs no emphasis that the function of claimsmanagement is closely associated with the othervital function at the upfront - Underwriting.Insurers would do well to ensure that theirunderwriting skills are at a high pedestal so thatsettlement of claims, whenever they arise, becomesa much simplified job. The trends of accepting allrisks in order to enhance the business portfolio;and then indulge in 'claims underwriting' shouldbe avoided.
It is also essential that insurers undertake ananalysis of the various classes of insurance,
particularly in those areas with huge claims ratios.They should eventually work towards attainingself-sufficiency in all classes of business. Cross-subsidization, among policyholders or withinclasses of insurance, is detrimental to the successof the industry in the long run. Claims Managementis the focus of this issue of the Journal and we havedifferent perspectives and viewpoints on this vitalfunction, authored by a cross-section of experts.
Of late, the subject of money laundering isassuming great importance in financial circles.Although insurance has not been seen as a majorconduit for money launderers, the possibilitycannot be totally wished away. The next issue ofthe Journal would focus on 'Money Laundering andInsurance'. We are inviting experts to share theirthoughts with us in this vital area.
rom the PublisherF
Statistics - Life Insurance 4
Vantage Point - U. Jawaharlal 6
In the Air 7
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Statistics - Non-Life Insurance 42
News Briefs 44
Round-up 48
31The Future And 'Insuring' ServicesAPPARAO MACHIRAJU
Handling Claims Yegnapriya Bharath
22Claims Settlement In LifeInsurance Ganesh Iyer.
24Ensuring Fair ClaimsManagement D V S Ramesh.
27
Empathizing with the ClaimantShiva Belavadi.
9Prompt Claim Settlement
Swaraj Krishnan.
12Promises vs. Performances
G V Rao.
14Effective Claims SettlementProcedure Antony Jacob.
17The World of Liability Claims
Uttara Vaid.
19
FROM THE EDITOR
In an emerging market, where the awareness levels are still at a low ebb, it would be ambitious to expectthe average policyholder to understand the nuances of the insurance contract in their entirety. Evenequating the premium paid to purchase an insurance policy and an investment made that assures areturn; also cannot be totally ruled out. It should be realized that payments in insurance contracts arecontingent on the happening of the event which is covered.With the exception of several of the life insurance products, there is no assurance and this must bethoroughly ingrained into the mindset of the clientele. Further, in most of the insurance contracts(barring life, once again), there are covered perils and excluded ones. It should be analyzed properlywhether there is in fact a claim, and if so to what extent, before putting up a claim.Insurers, on their part, would do well to separate the genuine claims from the others so that, in the end,the very mechanism of insurance emerges victorious. Even in case a claim is to be repudiated for whateverreasons, it should be done with absolute clarity and justification so that the claimant is not disillusioned.It is, however, easier said than done. The success of the insurer depends on how efficiently he hasmanaged to accomplish this task.Claims Management forms the focus of this issue of the journal. Considering the huge popularity of thissubject and various experiences associated with it, we have several articles written by practitioners -some present, and some past. To start with, Mr. Shiva Belavadi highlights the importance of properhandling of the claims portfolio in life insurance, with an emphasis on contractual obligations. Mr.Swaraj Krishnan talks about the importance of adopting a holistic approach in claims management.Mr. G.V. Rao takes a critical look at the role of the insurers in this domain and goes on to suggestmeasures for improvement. The role of the claims manager in different areas like catastrophes, fraudsand litigation is brought home succinctly by Mr. Antony Jacob. Liability insurance is a world in itselfand poses several challenges to the insurer. Ms. Uttara Vaid talks about the multiplicity of claimantsin this vital area. Handling claims to the utter satisfaction of the policyholder is the 'dharma' of theinsurer in the words of Ms. Yegnapriya Bharath. Mr. Ganesh Iyer underlines the importance of personaltouch in settling life insurance claims. In the end, we have Mr. D.V.S. Ramesh discussing the salientaspects with a touch of practical experience in the settlement of claims in life insurance.We also have an article by Mr. Appa Rao Machiraju that discusses the role of insurance in the overalleconomic development; in the 'thinking cap' section. Besides, we have the statistics of life insurers andnon-life insurers for the year ended March, 2006.The focus of the next issue of IRDA Journal would be 'Money Laundering and Insurance'. Severalexperts would be penning their thoughts on this very topical issue.
U. Jawaharlal
Gaining Customer Confidence...
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 20064
Repo
rt Ca
rd:L
IFE
Pre
miu
ms
rise
41%
for
the y
ear
ended 3
1st
Marc
h 2
006
Firs
t Yea
r Pre
miu
m U
nder
writt
en b
y Life
Insu
rers
for t
he fi
nanc
ial y
ear 2
005
-06
IIII I ndiv
idual
Prem
ium:
ndivi
dual
Prem
ium:
ndivi
dual
Prem
ium:
ndivi
dual
Prem
ium:
ndivi
dual
Prem
ium:
The l
ife in
suran
ce ind
ustry
und
erwrot
e Ind
ividu
al Sin
gle P
remium
of R
s.10,9
9,898
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ring
2005
-06,
of wh
ich p
rivate
insu
rers g
arnere
d Rs
.2,24
,590.0
9 lak
h an
d LIC
garn
ered
Rs.8,
75,30
8.88
lakh.
The c
orresp
ondin
g fig
ures f
or the
prev
ious y
ear w
ere R
s.590
461.1
3lak
h for
the
indus
try w
ith p
rivat
e ins
urers
und
erwrit
ing R
s.101
578.
32 la
kh a
nd L
ICRs
.488
882.
81 la
kh.
The
Indivi
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Non-
Single
Prem
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duri
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e ye
aren
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1st M
arch 2
006 w
as Rs
.19,88
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which
the p
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insu
rers u
nderw
rote
Rs.6
,94,
322.
40 la
kh a
nd LI
C Rs
.12,
94,5
81.8
9 lak
h.
The
corre
spon
ding
figure
s for
thepr
eviou
s ye
ar w
ere
Rs.1
5245
82.7
4 la
kh o
f whi
ch th
e pr
ivate
insu
rers
unde
rwro
teRs
.3865
12.42
lakh
and
LIC R
s.113
8070
.32 la
kh.
Grou
p Pr
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:Gr
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Prem
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Grou
p Pr
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:Gr
oup
Prem
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Grou
p Pr
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:Th
e ind
ustry
unde
rwrot
e Grou
p Sing
le Pre
mium
of R
s.4,40
,624.1
2 lak
h of w
hich t
he pr
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insure
rs un
derw
rote
Rs.4
5,99
6.35
lakh
and
LIC
Rs.3
,94,
627.
77 la
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ves c
overe
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ing 1
,23,29
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8,61,3
91 an
d 1,14
,68,00
8 res
pecti
vely.
The
corre
spon
ding f
igures
for
the pr
eviou
s yea
r were
Rs.4
0139
7.94
with
priva
te ins
urers
unde
rwrit
ing R
s.31,1
25.55
lakh
and L
IC Rs
.3,70
,272.3
9 lak
h; an
d the
lives
cove
red be
ing 87
0762
8; 5,6
5,254
and 8
1,42,3
74res
pecti
vely.
Th
e Gr
oup
Non-
Single
Prem
ium u
nderw
ritten
duri
ng th
e ye
ar en
ded
31st
March
200
6 wa
s Rs.6
0,368
.13 la
kh a
nd w
as u
nderw
ritten
entir
ely b
y the
priv
ate in
surer
s,co
verin
g 28
,51,
686
lives
. Th
e co
rresp
ondi
ng fi
gure
s fo
r the
pre
vious
yea
r wer
eRs
.36,52
3.30.0
7 lak
h co
verin
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,45,35
5 liv
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gmen
t-wise
Seg
rega
tion:
Segm
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egre
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gmen
t-wise
Seg
rega
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Segm
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egre
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gmen
t-wise
Seg
rega
tion:
A fur
ther s
egreg
ation
of t
he p
remium
und
erwrit
ten d
uring
the
year
indica
tes th
at Lif
e,An
nuity
, Pen
sion a
nd H
ealth
contr
ibuted
Rs.26
,38,52
9.36
lakh (
73.57
% ),
Rs.1,
54,38
2.34
lakh
(4.30
%),
Rs.7,
92,85
2.43
lakh
(22.1
1% )
and
Rs.73
6.56
lakh
( 0.02
%) r
espect
ively
to the
total
prem
ium.
In res
pect
of LIC
, the
brea
k up o
f life
, ann
uity a
nd pe
nsion
categ
ories
was R
s.16,9
5,656
.80 la
kh (6
6.12%
), Rs
.1,40
,275.3
8 lak
h (5.4
7%) a
nd Rs
.7,28
,586 l
akh
(28.
41%
) res
pecti
vely.
In ca
se o
f the
priv
ate in
surer
s, Rs
.9,4
2,87
2.56
lakh
(92.
26%
),Rs
.14,
106.
96 la
kh (1
.38%
), Rs
.64,
266.
06 la
kh (6
.29%
) and
Rs.7
36.5
6 lak
h (0
.07%
)res
pecti
vely
was u
nderw
ritten
in th
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r seg
ments
.
Unit
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d an
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nven
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l prem
ium:
Unit
Linke
d an
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nven
tiona
l prem
ium:
Unit
Linke
d an
d co
nven
tiona
l prem
ium:
Unit
Linke
d an
d co
nven
tiona
l prem
ium:
Unit
Linke
d an
d co
nven
tiona
l prem
ium:
Analy
sis of
the s
tatist
ics in
term
s of l
inked
and
non
-link
ed p
remium
indic
ates t
hat 5
5.22%
of the
bus
iness
was u
nderw
ritten
in th
e no
n-lin
ked
categ
ory, a
nd 4
4.78
% in
the
linke
dca
tegory
, i.e
Rs.19
,80,43
3.27
lakh
and
Rs.1
6,06,0
67.42
resp
ective
ly. I
n ca
se of
LIC, t
helin
ked
and
non-
linke
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mium
was
29.7
6% a
nd 7
0.24%
resp
ective
ly; a
s aga
inst w
hich
for th
e pri
vate
insure
rs tak
en to
gethe
r, thi
s stoo
d at
82.48
% a
nd 1
7.52%
resp
ective
ly.
STATISTICS - LIFE INSURANCE
SlSlSlSl SlIn
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rIn
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rIn
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idual
Single
Prem
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0623
.6245
144.5
243
278
1275
7141
940
Indiv
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Non-
Single
Prem
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172.3
711
8483
.9640
122.9
721
8131
6539
1324
6107
Grou
p Sin
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105.7
633
2.28
0.00
01
045
211
960
Grou
p No
n-Sin
gle P
remium
531.8
521
22.20
734.3
136
200
144
9602
539
4990
3625
312
ING
Vysy
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G Vy
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Vysy
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dividu
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gle P
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787.6
117
35.35
57.06
606
1656
8393
Indiv
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Non-
Single
Prem
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16.14
2434
1.37
2662
5.83
2983
112
4407
1026
55Gr
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Single
Prem
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.1493
2.28
985.2
20
00
105
2508
2282
Grou
p No
n-Sin
gle P
remium
480.6
413
98.95
494.3
512
7282
2897
153
951
4676
33
Relia
nce L
ifeRe
lianc
e Life
Relia
nce L
ifeRe
lianc
e Life
Relia
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dividu
al Sin
gle P
remium
1628
.7112
019.1
362
35.98
2516
1766
376
39In
dividu
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2478
.8464
55.29
2325
.6020
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6170
827
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Grou
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remium
*0.0
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018
5.87
00
10
019
0Gr
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Non-
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Prem
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7.71
869.3
537
0.99
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7410
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1293
3595
116
4SB
I Life
SBI L
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I Life
SBI L
ifeSB
I Life
Indiv
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Single
Prem
ium52
83.28
1286
5.78
6992
.6984
5820
379
7963
Indiv
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Non-
Single
Prem
ium14
492.3
230
937.1
598
39.46
8204
526
3118
1183
51Gr
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Single
Prem
ium50
29.86
2417
7.84
2658
2.93
02
632
636
2126
0426
5614
Grou
p No
n-Sin
gle P
remium
6801
.5014
870.7
548
78.48
239
1943
3654
1804
5285
6633
7027
695
Tata
AIG
Tata
AIG
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AIG
Tata
AIG
Tata
AIG
Indiv
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Single
Prem
ium12
7.89
607.6
10.0
00
00
Indiv
idual
Non-
Single
Prem
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83.64
3804
9.58
2502
0.74
3742
929
5690
2286
40Gr
oup
Single
Prem
ium45
3.75
2575
.4253
3.71
24
016
970
1565
5681
773
Grou
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n-Sin
gle P
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138.9
251
15.69
4467
.6329
255
254
1446
241
7993
2343
77
5irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006
*Grou
p sing
le pre
mium
numb
ers ha
ve be
en re
vised
by Re
lianc
e Life
No
te: Cu
mulat
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emium
upto
the m
onth
is ne
t of c
ancel
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s whic
h may
occu
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look
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d.
STATISTICS - LIFE INSURANCE
6HD
FC S
tand
ard
HDFC
Sta
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dHD
FC S
tand
ard
HDFC
Sta
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dHD
FC S
tand
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90.56
1190
2.74
8344
.8313
898
1186
4779
135
Indiv
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Non-
Single
Prem
ium15
696.3
477
476.6
435
323.0
449
386
2555
3620
7227
Grou
p Sin
gle P
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5790
.2610
623.2
520
64.18
3111
915
570
417
1854
8115
7517
Grou
p No
n-Sin
gle P
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1377
.6328
91.40
2883
.0310
2942
8145
2244
449
176
7I C
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1714
3.92
2509
9.41
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0.02
2010
351
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1753
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43.64
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Grou
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6415
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601.9
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964.7
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158
103
1012
0620
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Birla
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Birla
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life
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30.19
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156
295.4
850
780.1
456
651
1969
7914
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113.5
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62.98
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8386
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2.40
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884.6
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450.3
221
395
8980
261
174
Grou
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60.73
280.7
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594.9
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97.06
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x New
Yor
kIn
dividu
al Sin
gle P
remium
51.19
201.8
422
6.79
4227
423
8In
dividu
al No
n-Sin
gle P
remium
7860
.4143
936.4
221
602.3
657
908
4234
0421
6344
Grou
p Sin
gle P
remium
0.00
0.00
0.00
00
00
00
Grou
p No
n-Sin
gle P
remium
81.25
189.2
963
9.86
1910
289
3246
666
919
6893
312
Met L
ifeMe
t Life
Met L
ifeMe
t Life
Met L
ifeIn
dividu
al Sin
gle P
remium
164.7
364
8.39
265.4
527
413
9662
2In
dividu
al No
n-Sin
gle P
remium
3192
.5112
746.7
748
54.80
1684
694
025
4594
0Gr
oup
Single
Prem
ium0.0
00.0
00.0
00
00
00
0Gr
oup
Non-
Single
Prem
ium16
3.14
867.6
552
8.58
1918
412
246
675
3319
1915
9297
13Sa
hara
Life
Saha
ra Li
feSa
hara
Life
Saha
ra Li
feSa
hara
Life
Indiv
idual
Single
Prem
ium54
3.06
1726
.390.0
013
9043
870
Indiv
idual
Non-
Single
Prem
ium72
.2944
9.48
164.7
134
7018
910
1020
1Gr
oup
Single
Prem
ium5.0
16.3
40.0
09
230
8637
1005
40
Grou
p No
n-Sin
gle P
remium
0.00
0.00
2.38
00
130
023
8014
Shrir
am Li
feSh
riram
Life
Shrir
am Li
feSh
riram
Life
Shrir
am Li
feIn
dividu
al Sin
gle P
remium
0.00
0.00
00
Indiv
idual
Non-
Single
Prem
ium10
12.58
1031
.2520
237
2079
7Gr
oup
Single
Prem
ium0.0
00.0
00
00
0Gr
oup
Non-
Single
Prem
ium0.0
00.0
00
00
0Pri
vate
Total
Indiv
idual
Single
Prem
ium67
724.3
722
4590
.0910
1578
.3298
563
4223
7120
7517
Indiv
idual
Non-
Single
Prem
ium17
7624
.7069
4322
.4038
6512
.4279
4783
3445
512
2100
810
Grou
p Sin
gle P
remium
1336
6.68
4599
6.35
3112
5.55
5327
421
516
2747
8613
9156
5254
Grou
p No
n-Sin
gle P
remium
2144
5.88
6036
8.13
3652
3.30
489
3253
4763
5990
7328
5168
622
4535
515
LIC
LICLIC
LIC LIC
Indiv
idual
Single
Prem
ium20
2580
.1787
5308
.8848
8882
.8149
2681
2274
387
1625
292
Indiv
idual
Non-
Single
Prem
ium38
8979
.0912
9458
1.89
1138
070.3
210
2143
2929
2981
6022
3344
11Gr
oup
Single
Prem
ium89
492.7
939
4627
.7737
0272
.3937
1618
160
1842
015
5722
011
4680
0881
4237
4Gr
oup
Non-
Single
Prem
ium0.0
00.0
00.0
00
00
00
0Gr
and
Total
Indiv
idual
Single
Prem
ium27
0304
.5410
9989
8.97
6977
25.96
5912
4426
9675
818
8754
9In
dividu
al No
n-Sin
gle P
remium
5666
03.79
1988
904.2
915
2458
2.74
1100
9112
3274
3672
2443
5221
Grou
p Sin
gle P
remium
1028
59.47
4406
24.12
4013
97.94
3769
1843
418
635
1719
967
1232
9399
8707
628
Grou
p No
n-Sin
gle P
remium
2144
5.88
6036
8.13
3652
3.30
489
3253
4763
5990
7328
5168
622
4535
5Gr
and
Tota
lGr
and
Tota
lGr
and
Tota
lGr
and
Tota
lGr
and
Tota
lIn
dividu
al Sin
gle P
remium
2703
04.54
1099
898.9
759
0461
.1359
1244
2696
758
1832
809
Indiv
idual
Non-
Single
Prem
ium56
6603
.7919
8890
4.29
1524
582.7
411
0091
1232
7436
7224
4352
21Gr
oup
Single
Prem
ium10
2859
.4744
0624
.1240
1397
.9437
6918
434
1863
517
1996
712
3293
9987
0762
8Gr
oup
Non-
Single
Prem
ium21
445.8
860
368.1
336
523.3
048
932
5347
6359
9073
2851
686
2245
355
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 20066
VANTAGE POINT
Cleansing Ill-gotten WealthAlthough insurance has thankfully remained out of reckoning as a conduit for money laundering,
to a great extent; it would be naïve to believe that it is totally safe argues U.Jawaharlal.
The year 2001 remains to be a vastlysignificant year in the annals of worldhistory, so much so that there is nowonder if sometime in future, one refersto a particular period of time as pre-WTCor post-WTC. The impact of terrorismon humanity has been so severe anddeep-rooted. Terrorism existed evenearlier but WTC marked altogether anew beginning about the impact that asingle event could make. It showed howit could affect various aspects of humanlife; and the geographical spread that itcould reach.
In the aftermath of WTC, a series oflegislations with global significance havebeen made - USA PATRIOT ACT 2001,TRIA 2002 etc., to name just a few. Thehallmark of most of these legislationshas been that they focus on counteringand combating the financing ofterrorism; and they are closelyassociated with money-laundering.A great deal of importance has beenattached to prevention of moneylaundering activities also; and almostevery major economy has come out withits own version of this vital legislation.
Money laundering has become a globalmenace and several unscrupulouselements are on the prowl, waiting for
opportunities to find a conduit forcleansing their ill-gotten wealth. It hasbecome more virulent in the liberalizedenvironment as organized nefariousgroups generate huge sums of money invarious criminal activities like drugtrafficking; arms smuggling; andfinancial crime above all; and hence theneed to launder. Looking at the largesums that are generated, the possibleavenues that are the usual targets aremovie industry, real-estate etc. wherethere is scope for pumping in huge funds.
Even banks, the financial pillars of anyeconomy, could become a target as theysolicit funds in large quantities in orderthat their other main function - creditdispensation - does not suffer from a lackof funds. Accordingly, there is a lot ofemphasis on knowing one's customerbefore entertaining any majorrelationship. Insurance has thankfullyremained out of reckoning to a greatextent but the vulnerability cannot betotally ruled out. Some sensitive areascould be the single premium or unit-linked products in life insurance; atendency to surrender life policiesfrequently etc.
One area of insurance business whichcould be a sitting duck for money-
launderers is the secondary dealing oflife insurance policies. As of now,secondary market for life insurancepolicies does not exist in India; and tothis extent, the insurance industry canbe said to be secure. All the same, thereis need for being alert at all times andhence it has been felt right to make itmandatory for all insurers to becompliant with the variousrequirements in this domain.
In order that any tendencies for usinginsurance as a medium for disguisingone's illegally acquired wealth arethwarted, it is important that there isquick flow of information across theplayers, cutting down their professionalconfidentialities. The staff, at all levels,should be trained about theimplications of the possible avenues,from time to time. Above all, insurersshould take care to avoid pitfalls in theform of big business opportunities andstrictly comply with all therequirements of the statute.
'Money Laundering and InsuranceIndustry' is the focus of the next issueof IRDA Journal. We will be bringingyou some precious thoughts in thisdomain from experts in the field.
Money Laundering and
Insurance Industry
In Our Next Issue....
7irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006
IN THE AIR
Re: IRDA (Assets, Liabilities and Solvency Margin of Insurers)Regulations, 2000-Clarifications
31st March, 2006
To
All Life Insurers, Non Life Insurers and Re-insurers.
Queries have been raised by insurers on various matters
relating to the manner of computation of solvency margin
as provided in the Regulations. To ensure consistency in the
interpretation of the Regulations, the following clarifications
are issued. Insurers are required to ensure compliance with
these clarifications while computing the solvency margin
as at 31st March, 2006 and thereafter.
1. Table I to Form KG: Statement of Solvency Margin:
(General Insurers) - (a) Gross Premium for the purpose of
Solvency Margin shall be the aggregate of gross direct
premium and reinsurance accepted premium; and
(b) Incurred claims: Explanation (ii) to Section 64VA of
the Insurance Act, 1938 stipulates that net incurred
claims means the average of the net incurred claims during
the specified period of not exceeding three preceding
financial years. It is now clarified that: i. the Gross
Incurred Claims and Net Incurred Claims (inclusive of
IBNR and IBNER) shall be taken as the average of the
previous three years (excluding the financial year with
reference to which the solvency of the insurer is being
computed) and shall in no case be less than the amounts
of Gross and Net incurred claims for the financial year
ending on the reporting date; and ii. The incurred claims
should also include claims pertaining to reinsurance
accepted.
2. Valuation of Assets: Schedule I of the Regulations - Clause
2 (3) of the Regulations provides that all assets of an
insurer, other than those specified at (1) and (2), have to
be valued in accordance with the IRDA (Preparation of
Financial Statements and Auditor's Report of Insurance
Companies) Regulations, 2002. However, as a matter of
prudence and also consistent with the requirement of
section 64 V (1) (i) of the Insurance Act, 1938 which states
that "assets shall be valued at values not exceeding their
market or realizable values", for the purpose of
computation of solvency margin, debt securities shall be
valued at lower of the amortized cost and the market value.
It is, thus, clarified that while for the purpose of
preparation of financial statements the debt securities
would continue to be valued at the amortized cost, for the
purpose of computation of solvency margin, these shall be
valued at lower of the amortized cost and the market value.
3. Clause 2 (ii) to Schedule II-B of the regulations lays down
the manner of determination of Reserve for Unexpired Risk.
Some insurers have misinterpreted this provision to mean
that even where the actual reserves maintained in the
Accounts of the insurer are higher, it is adequate to use
the percentages stated in the Regulations for assessing
the solvency margin.
It is clarified that it will not be prudent to consider a
reserve for computation of solvency margin which is less
than that created in the financial statements.
Accordingly, the Reserve for Unexpired Risks taken into
account for the purpose of computation of solvency margin
should be the higher of (i) the actual reserve maintained
in the books of accounts of the insurer and (ii) the URR
arrived at based on the percentages stated in the
Regulations for each class of business stated therein.
4. Deferred Tax Assets: Section 64 V (1) of the Insurance
Act, 1938 and the regulations list out the assets which
shall be assigned value "zero". While "Deferred Tax Assets"
have not been listed there under, as a matter of prudence,
it is hereby advised that such assets shall also be assigned
"zero" value for the purpose of computing solvency margin.
All insurers are advised to ensure compliance with the
clarifications issued herewith effective from the
statements as at the end of financial year 2005-06.
Sd/-(C.S. Rao)
Chairman
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 20068
IN THE AIR
Re: Guidelines on Anti MoneyLaundering programme for Insurers
31st March, 2006
To
All the Insurers.
Dear Sir/Madam
1. The Prevention of Money Laundering Act, 2002 (PMLA)has been brought into force with effect from 1st July 2005.Necessary Notifications / Rules under the said Act havebeen published in the Gazette of India on 1st July 2005 bythe Department of Revenue, Ministry of Finance, andGovernment of India.
2. As per the provisions of the Act, every banking company,financial institution (which includes Insurance company)and intermediary shall have to maintain a record of allthe transactions; the nature and value of which has beenprescribed in the Rules notified under the PMLA.
3. The Guidelines are being issued to the insurers in thecontext of the recommendations made by the FinancialAction Task Force (FATF) on anti-money launderingstandards.
4. You are advised to ensure that a proper policy frameworkas per the Guidelines on anti-money laundering measuresis put into place by 1st July 2006. You are also advised todesignate an officer as 'Principal Compliance Officer' whowould be responsible for ensuring compliance of theprovisions of the PMLA. Names, designation andaddresses (including e-mail addresses) of 'PrincipalCompliance Officer' should be intimated to the Office ofthe Director-FIU, 6th Floor, Hotel Samrat, Chanakyapuri,New Delhi 110021 India and to the Authorityimmediately.
5. This circular is being issued in exercise of powers conferredunder Section 34 of the Insurance Act, 1938.
Yours faithfully,(C. R. Muralidharan)
Member
Tenderingfor Insurance Covers
19th April, 2006To,All CEOs of General Insurance CompaniesIt has been reported to IRDA that a practice of calling fortenders for insurance cover required by some clients hasdeveloped and that in some of these tender exercises, theinsurer is required to pay some amount for buying thetender documents and also to pay an earnest moneydeposit.It has also been reported that in some cases clients invitebidding through the internet where the portal is keptopen for a short window of time and insurers are expectedto compete on price.Insurers are reminded that competition should not resultin introduction of practices that are not suitable totechnically sound transaction of insurance business.Insurance cannot be transacted like sale of a commodity.Proper underwriting requires that the insurer fullyunderstands the requirements of the client and is ableto ask for and receive all the information required tosupport a technically sound rating of the covers required.This is obviously not possible in the sealed tender systemor e-bidding system. Besides, limiting competition toprice alone is against the interests of the client to whomquotation is offered and since the policyholders’ fundultimately is affected by the results of the business, it isgenerally against policyholders’ interests.Insurers are therefore, advised to inform any clientseeking to use the tender process about the improprietyof that system for insurance business and offer to providecompetitive quotations for the covers best suited to theneeds of the client after obtaining all the requiredunderwriting information. Insurers should not canvassbusiness through a non-participative process of tenderingor e-bidding.The Authority reserves the right to require an insurer tostate the process of quoting terms for a particular clientand to technically justify the premium quoted for itscovers.
SD/-(C. S. Rao)Chairman
Press Release Regarding Motor Third Party insurance cover
16th March 2006
Regional Transport Authorities, Transporters and membersof the insuring public have brought to the attention of theAuthority instances of refusal of motor insurance by generalinsurance companies.
Members of the public are informed that the Authority hason several occasions instructed all General Insurers thatMotor Third Party insurance cover cannot be refused. MotorThird Party Insurance cover is a mandatory requirement under
Section 146 of the MV Act 1988 and cannot be denied byany insurer.
Members of the public may bring to the notice of theAuthority any refusal of Motor Third Party insurance(s),of vehicles used by them, by general insurers along withevidence thereof so that the Authority can take necessaryaction in this regard.
(C. S. Rao)Chairman
9irda Jour Jour Jour Jour Journal, December 2002nal, December 2002nal, December 2002nal, December 2002nal, December 2002 9
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006
ISSUE FOCUS
Introduction
Claims Activity is popularly perceivedto be the 'end of the spectrum' activityin the insurance process. It isconsidered to be the logical end of theinsurance life cycle which comprises ofProspecting, Assessment, PremiumPayments, Policy Delivery, PolicyServicing and finally Claims. Is this acorrect reflection of the realities and afair representation of the expectationsof the stakeholders in the insuranceprocess? This probably does not reflectthe full picture.
Defining the Purpose
When the proposer/insured paysinsurance premium due, consequentupon an application for insurance, he/she substantively fulfils his/her part ofthe insurance contract. The othersignificant performance in the contractis the payment of a claim either uponmaturity or on the occurrence of acontingent event. This, as we all know,is the primary performance obligationimposed upon the insurer by theinsurance contracts. The delivery of thepromise from the insurer's side is bypayment of a claim. Delivering thepromise is indeed that moment of truth,a culmination of the cycle whichcompletes the obligations placed uponthe insurer in the insurance process.
If we reflect further, there is a deeperpurpose. It is innate in man to takerisks. We have people climbing theHimalayas today as did the sailors whocircumnavigated the globe in the 14thand 15th centuries. What starts off asan adventure of brave men, transcendsto a loftier purpose when the same
Empathizing with the Claimant
activity could be done repetitively foreconomic gain. With economic activitythere is generation of wealth; and withwealth, well being of people at large.When there is repetitive economicactivity with exposure to risks,participants form a pool to collectivelyseek redressal from at least somecommon risks to which all participatingmembers are exposed.
Claim settlement activity is the onlyactivity which finally delivers to theunfortunate few who need solace andsuccor from the pool. All other activitiesin an insurance company are usuallysources of inward remittances forinsurance companies. The purpose ofclaims activity is to quickly put theunfortunate members of the group ortheir dependents, who have encounteredthe insured contingent event, back onrails, so that further economic activitycan take place; and serve mankind bycreation of wealth.
Life Insurance - Purpose of ClaimsActivity
In life insurance the purpose is servedby fairly assessing the economic valueof man to his family, trade oroccupation. At the first level the personwho buys insurance gets the comfortthat his family will indeed be takencare of in the event of his death. He isthus enabled to participate in economicactivity without worries. Admittedlyproductivity without worries would bemuch higher.
Thereafter, at the subsequent level,when a claim is paid to the family, thisputs the family out of economic distressand on to normal human productiveactivity. These family members inturn, become wealth generators for theeconomy.
The fact that the claim monies beingpaid usually belong to the spouse andchildren of the person insured/deceasedmakes the purpose of life insuranceclaims that much more altruistic,immediate and relevant.
Ultimately, the pristine purpose ofinsurance!!!
Applying First Principles into LifeInsurance Contracts:
It is imperative that we understand theapplicability of the fundamentalprinciples of insurance to appreciatethe relevance in the claims activity.
(a) Utmost Good Faith
Life insurance is a mere promise; apromise which holds far greatersignificance and sensitivity than anyother; a promise which at the end ofthe day crystallizes only on a piece ofpaper. These are words of honor given
The golden key for success of a life insurer is the deliverance of the promise. Nomoment of truth can be greater than a claim handled well writes Shiva Belavadi.
The delivery of the promisefrom the insurer's side is by
payment of a claim.Delivering the promise is
indeed that moment of truth,a culmination of the cycle
which completes theobligations placed upon the
insurer in the insuranceprocess.
-- A Perspective on Life Insurance Claims
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200610
ISSUE FOCUS
with a commitment in which uberrimafides becomes one of the cornerstones ofthis commitment. The principlebecomes operational from the time ofapplication for insurance and pervadesthrough the life of the insurancecontract. Compliance with this isusually checked out preceding a claimpayment.
It must be recognized that CaveatEmptor is no more in fashion today.Utmost good faith should be on exhibitfrom both parties to the insurancecontract. Whatever be the end, in thehour of conflict on interpretation ofintent and meaning, contra proferentum- interpretation of the documentagainst the person who drafted it -should be invoked. Breach of uberrimafides would have serious repercussionson the existence and implementationof the contract. Thus it cannot be a meremechanical application of the letter ofan insurance contract, but jointly of theletter and spirit of the contract. This isa core function of the claims activity.
(b) Insurable Interest
Since the subject matter of insuranceis precious human life, the benefits ofthe contract when invoked, would notgo to the promisee but to those whomhe deems fit - the nominees/assignees.Hence, it is a fair premise to ensure thatthe nominees/assignees indeed have alegitimate interest and hence ensurethe fulfillment of the secondfundamental principle of insurance.
(c) Indemnity
It is often stated that there is norelevance of the principle of indemnityin life insurance and is applicable onlyin general insurance. A prognosis willreveal there is indeed some relevance.The purpose of insurance is not toenable a profit but to mitigate a loss.The loss to the family is the income ofthe provider upon his death. This isusually limited to the economic valueof the life assured.
Adherence to this principle is made sureat the time of underwriting of aproposal. Through financialunderwriting, the insurer ensures thatno person is worth more dead thanalive. Insurers of all hues shunprofiteering!
Critical aspects in claims handling
(1) Trusteeship element in theClaims function
The business of insurance revolvesaround distribution of risk. A pool offunds of/from the customers is created,the objective being to allow a paybackto the customer in his hour of need. Thisoutage from the pool needs to bemonitored stringently and ensure thatit goes to the right people. It thereforegoes unsaid, that the persons
sanctioning claims have todemonstrate a high degree of integrityand trustworthiness essentiallybecause these persons sit in a positionof trustees of the pool, which althoughunannounced, is one of immenseimportance and responsibility.
Claims Department, as trustees of thepolicyholders, are representatives of thefaith which has been reposed in theInsurers by the customers at the timeof paying the premiums and it is aresponsibility cast upon them to be fair,just and honorable at the time ofopening the sluice gates of this pool.
(2) Documentation
It must be recognized that a documentalways follows a fact. For instance,death occurs first and the deathcertificate follows. As much as the focushas to be on proving the legitimacy ofthe claim, in the current scenario,exhaustive documentation mandatedfor claims processing is passé.Documentation should be principallyintended to establish the fact, cause ofthe event along with surroundingcircumstances. It should not beconverted into a ritual which wouldhave a significant effect of slowing downclaim payment. Whilst completingdocumentation we should not lose sightof the fundamental purpose mentionedabove.
Exhaustive documentation may assistin proving the legitimacy of the claim.However, in the process, the onus ofproving the legitimacy of intent as wellas of the claim is being shifted onto theinsured and /or the beneficiary. It isunequivocal that the responsibility ofproving the legitimacy of the claim, orotherwise, is on the insurer, rather thanon the customer.
Processes and sub-processes need to bedetailed to achieve the goal of siftingclaims -"legitimate" from"illegitimate"; and "valid" from"invalid". Circumstances and exigencieshampering production of the requisitedocuments should not automaticallypush the claim into a state of suspendedanimation. Further, insistence oncalling for facts and documents for thepurpose of fulfilling statistical needsor because "it is meant to be done" orbecause "we need to know" irrespectiveof the outcome on the final decisionregarding the claim is unjustified.
In that tone, it goes unsaid that factualcircumstances surrounding the event,not supported by officialdocumentation, have to be as muchtaken into consideration as theavailable documents, especially whenit is in favor of the client.
Documentation should beprincipally intended to
establish the fact, cause ofthe event along with
surrounding circumstances.It should not be convertedinto a ritual which would
have a significant effect ofslowing down claim
payment.
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 11
ISSUE FOCUS
However, declinations have to beexplicitly on the strength of the writtendocument and should be dissectedthread-bare to establish the"legitimacy" of the insurer's decision.In the final analysis, every claimdecision will also have to stand the testof scrutiny in a court of law.
(3) Interpretation of the Contract
It is important that the text of thecontract has to be interpreted in spiritalong with the word. It should not to beused as an offensive weapon against thecustomer. However, any waiver of thestringent checks and conditions in thecontract at the time of a claim tofacilitate interpretation of the spirit ofthe contract in favor of the customer hasto be controlled and monitored becauseof the risk of inconsistency ininterpretation and implementation.
That said, under extenuatingcircumstances, when a clear fraudulentintent is established beyond doubt, itis imperative that the policy conditionsare unleashed in full strength todemonstrate that a "pro-customer"approach is not to be interpreted as asign of weakness, but one of supremestrength.
The spirit of the trusteeship in theclaims function should always bemaintained in interpretation since oneor more policyholders cannot haveundue benefits to the exclusion ofothers.
(4) Investigations
Professional investigation of lifeinsurance claims is at an embryonicstage. The investigators are largelydrawn from the pool of investigatorswho were working for the generalinsurance industry.
The absence of experienced workforce,in the field as well as within theinsurers, is impeding the healthydevelopment of this art. Both theassignor and the assignee grapple withrelative inexperience and try to piecetogether a jigsaw. With no cleardirectives forthcoming, investigatorstend to handle investigation of life
insurance claims rather tentativelytaking a lot of time for submission ofreports. There is also a tendency to useinvestigations as a convenient device topass on responsibility of ascertainingdata, facts or information; and drawingconclusions therefrom to preventpotential audit queries.
The tone of investigations has to borderon sensitivity as the entire processrevolves around a deceased person anda bereaved family. This could, not onlyoffend sensibilities in the Indianscenario, but could also run the risk ofintruding upon zones of privacy beingprivy to information which the man onthe field may not be equipped to carry.
The challenge is, therefore, not only tostreamline the process to meet our endrequirements but to do the samewithout crossing the thin lineseparating tact from brusque so as tomake the customer a part of the loop,thereby buying his cooperation inspeedily closing out the process.
(5)Fraud - An exceptionAll Insurers are in the business of payingclaims to serve the purpose of insurance.Most claims would be from honestcontracts and from persons having thefirst rights on the funds in the insurancepool.
Notwithstanding this, it does not implythat all claims would get paid.Only legitimate claims warrantsettlement. Legitimacy of a claim is acontentious issue and the objective isto establish this by causing leastpossible inconvenience to the client.The sanctified legal principle is
The spirit of the trusteeshipin the claims function should
always be maintained ininterpretation since one ormore policyholders cannothave undue benefits to the
exclusion of others.
The author is Director - Claims,MetLife India Insurance Co Pvt. Ltd.,Bangalore. The article expresses thepersonal views of the author; and notthose of MetLife India Insurance CoPvt. Ltd.
'Innocent until proven guilty'.Considering the nascent stage of theprivate life insurance industry, wheremost of the target population haspractically no knowledge of theindustry, it would be extremelyunproductive for claim analysts toconsider all claimants being'Fraudulent until proven otherwise'.
In ConclusionSection 45 of the Insurance Act, rulingsof ombudsmen and consumer courts allover are pointers to the fact that the roomfor 'forcing decisions on gullibleinsureds' is progressively a thing of thepast.
Through the entire insurance life cyclefrom prospecting through policyissuance and servicing a claim, thegolden key is the deliverance of thepromise. No moment of truth can begreater than a claim handled well.
The core value which a claims analystmust embrace at all times is 'empathy'.Without stepping into the shoes of thebereaved family, it is very difficult todo justice from a distance. In paymentas also in declination, what is mostimportant is to be sensitive to thepolicyholders, who indeed have firstrights over the pool of funds theycreate.
Admittedly, handling the claimsfunction involves balancing andmanaging the interests of multiplestakeholders including policyholdersand shareholders. If this is indeeddone, there will be scope for co-optinginsured persons as active participantsinto the insurance process rather thanbeing a mute bystander at best or avictim in the worst. This will, in turn,sow the seeds for greater growth of theindustry as a whole in the long term.
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200612
ISSUE FOCUS
several innovations. Cashlesssettlement is one of the prominentchanges, which has benefited thecustomers. This process is available incase of hospitalization claims and hasbeen extended to motor repair claimsmuch to the relief of the customers.These procedures have also helpedinsurance companies to improve theircustomer service.
A lot of claims processing jobs have alsogenerated new intermediaries likeThird Party Administrators (TPA) forhospitalization claims. In motorinsurance, many insurers have tied upwith motor garages / workshops for quicksettlement of claims of their customers.
Use of technology - Technology alsohas been used to improvise the processof settling claims. Now customers canregister a claim, view the claim statusand monitor its progress till itssettlement. Claims can be registeredon-line and the claimant need not visitthe insurer's office. What is more, theycan download the relevant forms andeven track the status.
Transparency - For new players theonly way to demonstrate theirearnestness in prompt settlement ofclaims is to be as transparent as possible.
When the industry was opened up in2000, the new players could just talkabout the strength of their promotersto win over customers, as there waslittle product differentiation. Howeverthe real credibility and trustworthinessof an insurance company is put to testwhen a claim actually arises. It is theempathy towards the customer/clientand a sound understanding of the termsof cover, which determines the strengthof the insurance company. In otherwords an insurance company'sreputation is evaluated by its abilityto fulfill its promise of being there whenthe customer needs them the most i.e.when they submit their claims for therisks chosen. Moreover an insurancecompany also has an arduous task toensure an equitable and rationalclaims settlement. Claims settlementor more appropriately prompt claimsettlement should be the maxim for anyinsurance company. We have beenstriving for quick settlement since ourinception as we realized that this couldalso be used as an effective marketingtool.
It would not be an exaggeration to saythe customer service begins with claimssettlement and need not necessarilybegin with the policy issuance. Claimssettlement plays an intrinsic role inproviding a whole consumer centricinsurance solutions. You could to certainextent, cherry pick the business that youwant to underwrite in line with yourunderwriting policies, but not theclaims, which has to be paid.
Process changes - Over the years, theprocess of claims settlement has alsoimproved drastically and has witnessed
A regular evaluation of theperformance and benchmarkingagainst the best insurance companiesworldwide is a good way of monitoringthe process. For example, MIS reportsin the form of ageing analysis assistsin ensuring awareness among theclaims team. This, coupled withperformance monitoring, ensures day-to-day updates on claims position.
An escalation mechanism for any non-settlement of claims is a good practiceto ensure transparency and quickaction by the operational team.
Payment of claims - Once the loss isassessed and procedures are set, themost crucial aspect is the payment ofclaims. Here also there have beenmassive changes, which benefit thecustomers. Apart from the standardpractices of On-Account payments,improvement in technology from thebanking side has also made possibleof electronic transfer of funds directlyto the claimants' designated bankaccounts. This has reduced the time lagand all its associated problems.
Natural calamities, an opportunity-The recent floods in Mumbai and othercities, provided an opportunity to theprivate insurers to prove their abilityto handle large claims. Many of themhave used this to ramp up their claimsettling operations.
Several insurers issued advertise-ments in print and televisiondisplaying the claim hotline numbersand the persons to get in touch with, toregister the claim. Many of the insurerswere able to settle the claims within areasonable time period given the
Prompt Claim SettlementDue to the diverse nature and myriad claims that we face, a natural extension of a claims department
is in the form of claims trending and risk management input opines Swaraj Krishnan.
It is the empathy towardsthe customer/client and a
sound understanding of theterms of cover, which
determines the strength ofthe insurance company
- The Success Mantra
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 13
ISSUE FOCUS
magnitude of the damages. This wasalso a learning process for some of theprivate insurers in handling largevolumes of claims.
Pro-active approach - It has beenobserved that issues related to claimshandling effectively boil down to ClaimsManagement - a pro-active and hands-on approach.
Claims Settlement requires accurateengineering and legal support withinthe contractual context of our insuranceproduct as well as the relevantgoverning law and legal precedentsaffecting our contracts of reinsuranceand claims made.
This approach necessarily means -
� Early key decision making during theinitial claims process
� Efficient turnaround processhandling time
� Prompt response to our claimantsand business partners
� Hands on approach for all claims
It is also presumed that -
� Loss adjusters / Surveyors areappointed for claims withappropriate expertise
� Legal team is conversant with policyterms and insurance law are in placeto assist in interpretation
In short our goal should be 'To deliver ahigh quality claims product'.
Claim analysis and link to RiskManagement / Underwriting -Due to the diverse nature and myriadclaims that we face, a natural extensionof a claims department is in the form ofclaims trending and risk managementinput. It also includes study of legalimplications of policy wordings, suggestways and conduct research to improvethe drafting of policy wordings.
Claims Settlement requiresaccurate engineering andlegal support within the
contractual context of ourinsurance product as well asthe relevant governing law
and legal precedentsaffecting our contracts ofreinsurance and claims
made.
This provides our clients with theassurance of accurate and clearerdrafting of wordings that respect thecontractual intention of the parties;and also helps in meeting the legalprinciples of insurance law governingthe relevant language or parts of ourcontracts of reinsurance.
A Holistic Approach to Claims -Claims Department should have a wellbalanced and organically growing teamof various disciplines coupled with itsexperience and expertise to leveragesynergies; and strive to provide aclaims management service that isholistic from all relevant contractual,legal and technical legal inputs.
The author is Head - Claims,Bajaj Allianz General Insurance
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irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200614
ISSUE FOCUS
As hardly 20% of insurancebuyers ever report claims;insurers' competitiveness,
their differentiatingcapabilities and their fair
reputations are hardlyexperienced by 80% of the
buyers.
Promises vs. PerformancesA willingness to reach out to the consumer, who regards his need as an emergency; and giving him an
emotional crutch, makes good business sense says G V Rao.
- Dilemmas in Claims
Are insurers redeeming theirpromises?
Insurers, in the policies they issue totheir consumers, make promises toreimburse them their financial losses(claims) in the event of the occurrence ofspecified insured events. Thesepromises come with a number ofqualifications. The reliability of theactual performance of the insurers on theredemption of these promises, therefore,often comes under a cloud, as the contentof the promise itself becomescontentious.
Insurers also outsource several steps inrelation to their claims' settlement tosurveyors, investigators et al. Since theconsumers deal largely with anunsympathetic company staff that is notinternally held accountable for theresults of its performance, the dilemmasfacing them to find solutions seem muchharsher. The consumers argue that onehad to necessarily put up with theseattitudes in a monopoly; but should thatculture prevail in a freed and competitivemarket as well?
What are the dilemmas?
What respective dilemmas do theinsurers and the claimants confront,when faced with the harsh reality ofclaims processing, their settlement; andtheir possible rejection, or the promiseto pay has been misread ormisinterpreted by either? What can aconsumer do, if an insurer were to play ateasing game of dragging him to the courtproceedings, with its endless delays, asthe safest way, as is now customarilyseen in motor TP claims; and being
extended to other claims as well? Doconsumers really have a choice to takeon the might of the corporate power, ifthey chose to act in a punishing mode?
Consumer attitudes:
Consumers, when buying an insurancecover, tend to pay little attention to thecontent of the qualified promises; andseem more concerned with the price of
the product. As hardly 20% of insurancebuyers ever report claims; insurers'competitiveness, their differentiatingcapabilities and their fair reputationsare hardly experienced by 80% of thebuyers. That puts insurers more on thedefensive with the 20% that put inclaims.
The price of a cover matters very muchto all the consumers in a pre-salesituation; but if a claim were to occur,hell will break loose and emergencieswill arise and defensive techniques ofblaming insurers go into higher gear.They usually claim that they have notbeen advised enough on the fine print.Have insurers devised mechanisms todeal with this discontent? Facts and
feelings get mixed up. Insurers addressfacts ignoring feelings of consumers.Problems then arise.
This situational dilemma of insurers,of having to compete for consumers'attention initially on the product pricebut having to be judged by them onactual delivery of superior claim serviceexpectations--based on theirunderstanding of the coverage-- is whatcharacterizes the non-life business. Thegeneral verdict is: insurers do come upa whole lot short on public expectations.Is this fair to insurers? What are theyactively doing to brush up their fairimages to seem credible andtrustworthy to consumers? Theconsumers are no longer captives.
Insurers' attitudes:
There are claims whereininterpretation of terms and coverageare contested; there are also claimswhere amounts payable are in dispute.Insurers occasionally confuseconsumers by mixing these two aspects.There are also claims that are endlesslydelayed for tactical reasons, because ofinsurers' inability to decide on eitherliability or quantum; or where theoutsourced units sow doubts withoutproviding provable evidence or becausethe latter have too much work to do. Itis the attitude that determines theapproach; and insurers have clearlygiven an impression that they wouldlike to tie up consumers into knots, ifthere is the slightest sign of ambiguityon the claim progression.
Our discussion:
This article proposes to address a fewof the issues of this dilemma on both
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sides. Insurers continue to be inwardlooking, and look at their role in therapidly changing market, as meresuppliers of insurance products than asmarket makers bent uponrevolutionizing the buying patterns ofcustomers and reinforcing their faith ininsurance buying, as a worthwhileproposition.
Consumers, when claims do occur,regard them as emergencies and wantthe entire force of insurers to bear on aspeedy settlement, regardless of theimposed restrictions in the policycoverage. But given that this situationplays out with a monotonous regularity,it is necessary for insurers to develop abusiness model for claims that is fair,transparent and speedy. They shouldtake full responsibility for explainingtheir decisions to the claimants withfull disclosure. Recognizing theclaimant's rights for a fair and promptconsideration is an important aspect ofthe policy contract of utmost good faith.But insurers, by their attitude andconduct, tend to give him an unintendedimpression that he is a hostage.
We will analyze a few figures on claims,based on the statistical data put outand examine the obstacles that arehindering insurers' customerrelationships and how they can improvetheir real performances to be in linewith the promises made.
A few claim-related figures:
The non-life market produced a grosspremium of Rs.17,600 crore in 2004/05.It paid out about Rs.12,000 crore ingross claims, an increase of aboutRs.1,000 crore over the previous year.The unsettled claims in the form of netoutstanding claims amounted toRs.16,000 crore, up from aboutRs.15,000 crore.
The four PSU insurers have about 16lakh claims as outstanding. There areabout 22 lakh claims that get reported
annually. There are about 17 lakhclaims outstanding waiting to besettled. Over 60 % of these claims arein courts waiting for court verdicts,showing that these are disputed, a highnumber indeed.
The four PSU insurers have madeunderwriting losses of Rs 2580 croresin 2004/05 up from Rs.2,220 crore .Theirinvestment income was Rs.4,330 crore,up from Rs.3800 crore. While lossesgrew by Rs.360 crore, the investmentincomes grew by Rs 530 crores. Theinsurers have an incentive to hang onto cash long enough to generateinvestment incomes that essentiallyare their monies, though notionallytreated differently in the financialstatements.
The losses made are not wholly due tothe result of claims made by theclaimants. They include the very highcost of about Rs.4,500 crore to procureand manage the non-life business byinsurers.
Current business model:
Policies are now mostly sold toconsumers under pressure frominsurers/ banks except in regard tomotor and health covers. But all claimsare, however, required to be 'managed'by consumers on their own. There islittle publicized assistance toclaimants from insurers on theintricate steps they should comply.They are handed over to surveyors/investigators. The entire claims'
settlement process is outsourced tosurveyors, investigators, lawyers,courts, TPAs and others; and theclaimants are left entirely to their owndevices. This discontinuity in themutual relationship, at a time of whatis considered as an emergency need bya consumer, creates mistrust of themotives of insurers.
Mental models:
The mental models held of each other,therefore, come to dominate theirrelationship during claims processingstage; that claimants are usuallyuntrustworthy or that the insurers arealways looking out for ways to deny orreduce their claim. Can a claimant beallowed to meet insurers and seek theirinvolvement in the progression of theclaim? A claim is an emergency needfor the consumer; but it is an everydayoccurrence to the insurer. A willingnessto reach out to the consumer, whoregards his need as an emergency; andgiving him an emotional crutch, makesgood business sense. Does anyone ownthe customer, who also has a claim todeal with?
What do claimants want?
� Claimants want transparency withfull and speedy disclosure frominsurers at all stages of the claim'sprogression. They expect insurers tofulfill the regulations protectingtheir interests in letter and in spirit.These twin qualities enhance thevalue addition of the serviceproviders.
� Since insurers have outsourced theissues of liability and quantum tosurveyors, it is up to them to prodthe surveyors and others; instead ofexpecting claimants to knock attheir doors for speedy solutions.Unfortunately, insurers do notregularly evaluate the quality of theservices provided to them by theoutsourced outfits; their services are
Recognizing the claimant'srights for a fair and prompt
consideration is animportant aspect of the
policy contract of utmostgood faith.
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ISSUE FOCUS
primarily provided to the insurersand not so much to the claimants.This insight is lost sight of.Claimants are left to handle theseoutfits on their own, bringing inseveral malpractices.
� A claimant wants a speedysettlement of a claim; or if it isrejected, clear reasons for it. Insurersare known to deliberately resort toall kinds of subterfuges to eitherreduce the amount or totally denyliability. They seem to want to takefull advantage of legal delays involvedin fighting civil cases. Where they losecases they insist on going on appealsfor issues of prestige and not on legalgrounds. Since there is noinstitutionalized discouragement ofsuch tactics, they are proliferatingmore and more.
� Grievances should be handled withdefined structures, composition orconcern and not with utter contemptfor claimants. These cells should beaudited for their performances.If someone in the hierarchy declinesa claim, the spirit of brotherhood andthe fear of vigilance should come inthe way of any revision. Consumersare advised to go to consumer courts.Insurers should encourageindependent decision-making and notrely on precedent of rejection only.
What should insurers do?
First, insurers must accept that thereare problems in their claims handlingfrom the customers' perspective. Onlythen can they begin looking for possiblesolutions. There are, of course, processproblems for them constraining theirleverage; it is difficult for them to changethe Govt. culture of the processoverriding the outcome. They are alsounable to perceive anything else asworthwhile pursuing than premiumincome, as a measure of executivesuccess. They are more concerned withhow their competitors are outwitting
them in business growth than of howtheir customers are being treated. Theyneed to decide if claims settlement isan important strategy to buildreputations to attract customers; or usepremium price as the differentiator.
In my interactions with insurers, I aminformed, that there is no seriousproblem relating to customerdissatisfaction on claims front. Theyreally believe that the problems, if any,are customer-created and exaggerated.If business is being consistently lost, itis because of unethical competition andnot due to customer apathy. Oncedetariffing takes place, they will rideagain the crest of the business wave.Without entering into debate on this
issue, there are a few simple thingsthat insurers can easily do.
� Improve the effectiveness andtransparency of their grievanceredressal cells - have the cellsaudited every quarter on theirperformance at all centers.
� Learn from the cases insurers havelost in consumer forums,Ombudsmen, Civil Courts, MACTcourts and redraw underwritinglessons and other proceduralimprovement they should bemaking. Losing a case in anindependent court must causeoutrage and not contempt for thedecision-makers that their decisionsshould be contested. Learning fromproven mistakes is valuable.
� Be sensitive to customers'aspirations. They are money-rich andtime-poor. They are learning thatquality improvements are takingplace all over. E-literacy is rapidlygaining ground. Railways, MTNL/BSNL, and Airlines are showing thatthese corporations are getting morecustomer-savvy. They expectimprovements in the businessmodels of insurers as well
� Detariffing will put further pressureon insurers; they will have to competeon price and service in the form ofclaims as well. They need to improveclaims effectiveness if they want theprices to be high. As they cannot cuttheir present costs, private playersmay take a march with morevolumes, reducing costs.
Final word:
IRDA is presently benevolent towardsinsurers' compliance of the regulationsfor protection of policyholders. Testingcustomers' patience is not a worthwhilegame to play for long. It is in theinterests of insurers themselves to beseen as a friendly and responsiblebunch. The days of favor-dispensationare rapidly disappearing. Toughertimes are indeed ahead for insurers.
If someone in the hierarchydeclines a claim, the spirit ofbrotherhood and the fear ofvigilance should come in the
way of any revision.
The author is retired CMD, The OrientalInsurance Company Ltd. He may becontacted at [email protected]
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When you buy an insurance policy, yourmost serious concern should be thecompany's reputation in settlingclaims. Brilliant salesmen, friendly andcourteous call centre people,customised policies at terrific bargainsare all useless if the company does notact promptly and fairly at the hour ofneed or grief for the policyholder andhis family. The fairness and speed withwhich the insurance company acts whenthe money is needed badly overrides allother concerns.
The claims function plays a strategicrole in differentiating a company fromits competitors. The claims functionhas to monitor costs and provide claimsservice that goes "Beyond Expectations"of customers and operate within budget.
The claims philosophy of all insurancecompanies is to provide fair, quick andefficient claims service. In the UK, thenon-life insurance industry(Association of British Insurers) has a"General Insurance claims code". Theclaims code sets out clear and specificdeadlines to apply, when claims arefirst made; when they are processed andsettled; and to complaints thatcompanies may receive.
In India, the IRDA has issued a similarset of guidelines named "Protection ofpolicyholders' interests". In theirattempts to build brand names andestablish corporate identities,insurance companies are placing theirclaim function (nature, speed andefficiency) in the forefront of theirpromotion activities.
Since the source of the largest outflowof money within an insurance companyis the claims department, claimsmanagement is the key to developingoperational excellence. The claimsteam must endeavour to provideclaimants with appropriate indemnitywhilst ensuring that any such paymentsare justified. In short, they should beable to distinguish between valid andinvalid claims quickly and fairly.
This requires competent and well-trained staff, efficient administrativesupport, efficient claims procedures,efficient record keeping and clearclaims philosophy.
While all insurance companies wouldstrive to achieve excellence in theseareas, I would like to focus on threeareas, which pose a major challenge tothe claims function.
� Catastrophe management
� Frauds
� Litigation
Effective Claims Settlement Procedure
In order to reduce litigation, insurers should sensitize those dealing with claims tohave regard for the feelings of claimants argues Antony Jacob.
-- Need of the Hour
Catastrophe:
This very word brings to our mind theMumbai floods that happened aboutalmost a year back. The picture ofsubmerged buildings, factories andvehicles flashes through our memoryand while the rescue operations by thegovernment machinery attracted a lotof criticism, the insurance companiescame out with flying colours inmanaging the deluge of claims.
A leading international reinsurancecompany defines catastrophe as 'anoccurrence which claims more than 20lives, injures more than 50 people,makes more than 2000 peoplehomeless or causes insured damage ofover $29 million or a total loss of over$457 million'. By this definition,insurance companies were affected byan equivalent of 20 catastrophesduring the Mumbai floods. Such eventslead to a huge number of claims. SinceIndian insurers had adequate riskcontrol, risk funding andorganizational catastrophe plans, theycould manage these claims withoutdifficulty. The effect of such adevastating single loss event was wideranging and included a huge cost inclaims to both insurance andreinsurance companies, short term andlong term workload on the staff in theclaims process and large number ofindividual properties
Catastrophes have been growing inboth frequency and severity worldwide.Predicting the occurrence, frequencyand severity of catastrophes isextremely difficult.
Brilliant salesmen, friendlyand courteous call centre
people, customised policies atterrific bargains are all
useless if the company doesnot act promptly and fairlyat the hour of need or grieffor the policyholder and his
family.
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200618
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Effects on the claims department
In a catastrophe like the Mumbaifloods, the claims department isexpected to face the following problems:
� A sudden and unprecedentedincrease in the number of claims.
� A sudden increase in the number ofenquiries from customers,intermediaries, the press and thegeneral public.
Claims' handling in a catastrophecontext requires special efforts on thepart of the insurer. Those involved inhandling claims should:
� Ensure good communication betweenall parties involved in the claimsprocess
� Investigate immediately after theoccurrence of a disaster
� Concentrate on settling as manyclaims as possible - losses becomemore expensive the longer thenegotiations continue
� Prepare for the worst - catastropheplans are necessary before the event.
Problems can seem insurmountable;they can be overcome if planned forefficiently
Fraud:
Insurance fraud is almost as old as thehistory of insurance itself. Fightingfraud has become one of the keyobjectives of modern claimsmanagement.
Fraud can take a variety of forms,such as:
� Inflation of a genuine claim
� Creating an entirely fictitious event
� Causing deliberate damage toinsured property
Insurers have a hard-nosed approach tofraud and do not hesitate to take legalaction in appropriate cases. The recentMadras High Court judgment directing
CBI investigation into Third Partycases is an outcome of such proactiveaction by the insurers.
Experienced claims personnel identifya large number of fraudulent claimsquite efficiently. Frequent change ofinsurers, uncharacteristic increase inthe level of cover, and unclearownership of goods, are some instancesof possible fraudulent behaviour.Besides excessive pressure to settle, aninconsistent story, lack of co-operation,and even perfect documentation makeit possible for claims personnel todetect fraudulent cases.
It has always been very difficult toprove fraud in civil litigation. The highburden of proof frequently leads
insurers to resort to technical pleas ofnon-disclosure, misrepresentation andbreach of good faith rather thanattempting to prove fraud itself.
Litigation:
Though the intention of the insurer isto settle claims where they can, andrepudiate only where they must, therewill be occasions when a claimant maytake recourse to litigation or alternativemethods of dispute resolution like aconsumer court or ombudsman.
In order to reduce such litigation,insurers should sensitize those dealingwith claims to have regard for the
The author is Managing Director,Royal Sundaram Alliance InsuranceCompany Limited.
The high burden of prooffrequently leads insurers toresort to technical pleas of
non-disclosure,misrepresentation and
breach of good faith ratherthan attempting to prove
fraud itself.
feelings of claimants - an hour spent inthe beginning explaining why no validclaim exists may save many months offruitless correspondence ending in areference to the Ombudsman.Correspondence with claimants shoulduse words and ideas familiar to himand jargon is best avoided. It should bekept in mind that people always readthe promises in the insurers'advertisements but they rarely readthem in the policies.
Conclusion:
The Core objective of an insurancecompany should be to optimise asuccessful, effective and realisticapproach to claims handling that willsave your company money and increaseprofits. From the insurance company'sviewpoint, claims management is a keyelement in the competition betweeninsurance providers and for theimprovement of industry's publicimage. There is room for improvementin this area of client service and somecompanies have already demonstratedthis with international certificationslike ISO 9001 for their claim processes.The need of the hour is to codify the"Best practices" to guide both theinsurers and the customers.
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 19
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The World of Liability Claims
Unlike the other classes of insurance, Liability claims tend to be more complicatedbecause of the sheer number of the parties to the claim observes Uttara Vaid.
- A Deep -Rooted Analysis
such as the original claimant and hislawyer; the policyholder and thelawyers representing him; and theinsurance companies and should needbe, coverage counsel representing theinsurance company's interest.Each liability policy has differentnuances in its wording which invitecomplicated interpretations; add tothat, different jurisprudence indifferent jurisdictions, ingenuity fromlawyers across all parties, and we havea perfect recipe for a dramaticpotboiler.
Claim handling largely dependenton Policy Wording.
Since the handling of the claim isrooted in the policy wording, it isimportant to understand thedifference between the Right-to-defendalso widely known as ReimbursementWording; and Duty-to-defend wordings,both of which are now prevalent in theIndian market.
(*Though as a thumb rule this isgenerally the practice, and mostErrors and Omissions/ ProfessionalIndemnity (E & O) policies coveringCorporate Liabilities to mainly the ITsector have been issued on a Duty -to-defend wording, the trend is nowchanging with respect to E&O policiesand most clients and insurers are nowseen to be favouring the Right to defend/Reimbursement wording. This isbecause allegations of Errors andOmissions are highly sensitive issueswhich go to the fundamentals of ClientRelationship Management and someinsureds are preferring to handle theseclaims themselves backed by a moreintimate knowledge of their ownoperations and contractual liabilities
The claimant, who had suedfor $100 million, claimed she
was retarded because hermother inhaled noxious
fumes which resulted intoher deformed skull and
absence of kneecaps.
Moments of Truth
For any insurance company a"moment of truth" arises each time apolicy holder lodges a claim with thecompany under his policy. The handlingof that claim from the start to itsresolution, whether the claim be simpleor complicated; from an individual orone of the Fortune 500 companiesdifferentiates a top class insurancecompany from mediocre. It also makesor mars the insurance company'sreputation and prospect of repeatbusiness in the market, both of whichare essential for the longevity andgrowth. In this scenario, LiabilityClaims deserve more attention becauseoften they involve untestedcircumstances, a fresh look at policywording vis-à-vis intention of coverage.
Why so? Why are liability claims sounique? - May be, on account of thefollowing characteristics.
Claims transcending coveragetriggers of non-intended exposures
Consider these:
A case is brought by a woman on aFortune 500 company who claimed hersevere birth defects were the result ofher mother's exposure to chemicals atthe defendant's plant.
The claimant, who had sued for $100million, claimed she was retardedbecause her mother inhaled noxiousfumes which resulted into her deformedskull and absence of kneecaps.
Cell phone users are now burning theEmployer's legal liability andWorkmen's Compensation books. Prayhow would that happen? Employeeswho have been taking official callswhile driving themselves to work have
been involved in car accidents and areclaiming that such injuries are "arisingout of and in course of employment "
In both the above cases, liability claimshave been triggered in classes ofbusiness other than where they wereanticipated. When the unborn baby ofan employee exposed to hazardouschemicals claims bodily injury it movesout of the realm of Workmen'sCompensation (Employee Injuries) tothird party injuries (Public Liability).
Office risks generally considered safefor WC (though World Trade Centrelosses quite changed that perceptioneffectively), now become hazardous onaccount of rampant usage of cell phoneswhich turn every waking and workinghour to being "on duty" and every suchaccident to "arising out of and in courseof employment"
Multiplicity of Parties to the Claim
Liability claims tend to be morecomplicated because of the sheernumber of the parties to the claim.Picture this; Liability claims ofteninvolve as many as 6-7 parties involvedin the claim. Here is not astraightforward policyholder v/s insurerissue but involves many third parties
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ISSUE FOCUS
It can take many years afterthe policy is written to
determine final results of theoriginal claim made in any
one year.
Sl. Points Right to Defend Duty to DefendNo.
1. Who handles the claims The policyholder handles the claims. The insurance company uponHe must however inform the receiving notice of the claim handlesinsurance company, seek their it from start to resolution.prior consent in any settlement
2. Defence Costs (In both cases Initially defence costs are borne by Since the insurance company handlesdefence costs reduce the Limit the policy holder but are reimbursible the claims; it bears the defence costsof Liability, unless the wording with the damages when the claim is subject to the adequacy of thespecifies otherwise. In some adjudicated limit of liabilitycountries, policies with defencecosts in addition to limits aremore popular.
3. Practice* Right to defend wording is normally Normally liability policies intending togiven to cover personal liability cover corporate liabilities such assuch as in a D&O policy Public /Product Liability may be
issued on a Duty-to-defend wording.
arising therefrom. From the insurancecompany's point of view, however, theirrights of investigating the facts of thecase, the legality and the tenability ofthe claims and assessing appropriatequantum, remain.)
Unmatchable Claims handlingService through Duty-to-defendwording.
The Duty-to-defend wording providesunmatchable Claims handling benefitsand in a world where outsourcingeverything but your core activity is seenas a prudent business practice, thiswording provides to the hapless insuredan opportunity to outsource thehandling of his claim. The insured canavail of expert Litigation ManagementSystem of the insurance company,Home Court advantage in foreigncountries banking on a worldwideinsurer's presence and peace of mindknowing that his claim is being handledby expert lawyers who are paid by theinsurance company without himdisturbing his cash flow.
When the lawyer is appointed by theinsurance company, who does heactually work for; the insurer or theInsured ?
What is essential to understand hereis that the lawyer appointed by theinsurance company in discharge of Duty-to-defend obligation also representsprimarily the policy holder and not theinsurance company who has appointedhim. This becomes extremely importantwhen the adequacy of Limit of Liability
assumes critical importance.Therefore, whilst the InsuranceCompany is entitled to disassociatethemselves from legal proceedings oncethe limit of liability is exhausted, the
same lawyer can continue to representthe policy holder till the resolution oflegal proceedings, depending of courseon the comfort level enjoyed betweenthe Lawyer and his client.
Long Tail Nature of liability claimsand resultant spiralling costs :
What also makes the task for theLiability Claim assessor more arduousis the Long Tail nature of liabilitybusiness which manifests itself in twoways:
� It can take many years after thepolicy is written to determine finalresults of the original claim made inany one year.
� Claims themselves can be mademany years after a policy hasexpired.
� Length of litigation and the judicialattitude prevailing in thejurisdiction in which the claim isfiled.
And obviously this leads to an increasein claims costs which balloon becauseof increased future health care costs andthe practice of granting annuitysettlements in some jurisdictions.
Jurisdiction in which the claim isfiled and in which the Liabilitypolicy needs to respond as perwording :
Anyone who does business in the U.S.or with U.S. companies recognizes thecomplexity of the tort system and thepotential for a claim. Not only doeseach one of the 50 states have its ownlaws and court system, there are morethan 1 million attorneys in the USA.Add to this the fact that the media haveprovided substantial publicity of largeawards, further providing incentive forlitigation. In an era when jury verdictsare returned in the hundreds of millionsof dollars, it is essential to manage theliability claims proactively when theclaim is filed in litigious jurisdictionssuch as USA or Australia.
The obvious effect of the Retro orthe Sunrise Clauses in the ClaimsMade or Occurrence Based Wordingrespectively :
Liability policies may be issued eitheron a Claims Made or an OccurrenceBased wording. What is the differencebetween Claims Made and OccurrenceBased wordings?
21irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006
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Liability Claims professionalswill vouch that there is "No
Typical Liability" Claim andeach claim needs a different
approach.
The Claims Made wordingmandates that :The event, giving rise to the claim,should have occurred during the periodof insurance.The claim should be made during thepolicy period (12 months during whichthe policy is in force). The period ofinsurance is defined as the periodbetween the dates of inception of theFirst Claims Made policy (continuedwithout a break and the expiry of thecurrent policy.In an Occurrence Based wording, theevent giving rise to the claim, must occurduring the policy period and, typically,the insurer would respond whenever theclaim is thereafter made on theInsurance Company Retro or Sunrise clauses have the effectof increasing the period of insurance (notthe policy period) as per the intentionof the parties to the insurance contract.Liability Claims handlers have tocontend with the fact that claimssurface sometimes long after the causeof action/accident has occurred. Validityof the insurance claim will then needto be determined with reference towording (Whether on a Claims Made orOccurrence Based format), whether theclaim or notice of circumstances of claimfell within Prior Acts Exclusion or metwith the Retro requirements of thecoverage granted.And last but not the least at whichlayer is the insurance companyparticipating ?Large liability programmes are oftenlayered between Primary and Excesslayers and the handling of the primaryclaim as compared to the handling ofan excess claim varies greatly.
Sometimes if a large Excess layer sitsover a very low underlying, then theExcess underwriter may be justified inrolling his sleeves and getting down towork as proactively as a Primaryunderwriter and wordings whichmandate notice and Claims Control /Co-operation are often observed in suchcontracts which give him the legalwherewithal to do so.Though it does repeat a cliché, theabove is merely illustrative and notexhaustive and gives an idea of thecomplex weave of the large tapestry ofLiability claims. To round off thisarticle, it would still be necessary togive the reader an idea of the stepsinvolved in handling such claims.Steps in handling a liability claimAs a starting point the Liability claimtechnician will:
� Gather all the relevant factspertaining to the claim
� Assess liability and determine aresolution strategy
� Determine an accurate damageexposure
� Analyse potential tort costsincluding awards for economic lossand non- economic loss (such asadministrative and defense costs), aswell as claimant's attorney fees
� Assign qualified defense counsel byspecialty, if litigation is involved
� Establish accountability andmethods to measure performance
With this foundation in place, liabilityclaims professionals investigate thevalidity of the claim to understand theclaimant's grievance.No Typical Liability ClaimLiability Claims professionals willvouch that there is "No TypicalLiability" Claim and each claim needsa different approach. While expertiseand experience do count, nothingmatters more than the empathy of theinsurer and his willingness to gobeyond the letter of the law and line ofduty in settling the same whether itbe through the long arms of law orthrough the Alternate DisputeResolution channels open to it orthrough just old- fashioned but mostfavoured road of a negotiatedsettlement!On the policyholder's part also thereis need for increased transparency,trust and resultant co-operationtowards the insurance company; andan awareness that both the insuredand insurer are on the same side of thefence and are working towards thesame objective of a speedy and fairresolution of the legal matter. In thatrespect a Liability Claim is a firmreminder to both the insured andinsurer of the Utmost Good Faith whichis the invisible glue that binds theinsurance world together!
The author is Vice President - Marketingand Product Development, Tata AIGGeneral Insurance.
about what you want to see in IRDA Journal.
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irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200622
ISSUE FOCUS
It is important for apolicyholder to go through
the policy when he receives itand not just when there is a
claim. It is seen that 'thesmall print' or the clauses,conditions and exceptions
given in the policy documentare rarely read till a claim
arises.
agitated and asked to see mypredecessor in the department. I toldhim he was transferred and that infuture he had to deal with me. He triedto calm himself and mumbledsomething before enquiring about hisclaim. Later I went through his claimfile not understanding a word of thesurvey report! My interview questionabout 'technical expertise' haunted meas I realised I hardly knew a thing aboutmotor vehicles or their parts. That
evening I actually went and boughtmyself an encyclopedia on automobiles.Thus began my journey into insuranceand its technicalities. This is just tomake a point that claims processing isnot a simple affair and for a claim to beprocessed smoothly and quickly, theinsurer should ensure that its claimshandling staff are skilled andknowledgeable.It is also important for the claimshandling staff to have goodcommunication skills. The job requirestremendous patience. The insured hasjust had a loss. He is bound to beagitated. At a time when he is doggedby worries due to a financial loss, hemight not pay full attention to claimsprocedures and documentation
I had just been posted to the Claimsdepartment and was pretty excited tohave got an opportunity to handlesomething 'technical.'As it happens in any organisation, whenyou join as a raw hand and are noprofessional, you can't choose yourdepartment. You have to begin withwhatever you are asked to handle,which is usually one of the supportingdepartments rather than the coreactivity of the company. Then you tryand push your way through to what isregarded as 'core'. I remember being toldin the interview I attended for the job"Insurance is a highly technical subject.Do you think you can cope with it?" Idon't remember how exactly I respondedto this question but at least it did notcost me my job.Within a short span of my joining theDivisional Office, I managed to get outof handling 'Establishment' and'Personnel,' and joined the claimsdepartment. I was eager to take upsomething substantial. When asked Ichose "Marine" as if I knew everythingabout Marine Insurance claims! Ofcourse I had gathered by then thatMarine Insurance was the mostinteresting and challenging area anddid have some exposure to the subjectas we had been trained for six monthsin all branches of insurance. But thentraining is only training; and especiallyin insurance, it is experience that is thebest teacher. For experience I had tobegin somewhere, sometime. Anyway Iwas promptly posted to the Claimsdepartment and asked to handleMarine as well as Motor Claims. Thosewere the days when, in the public sector,the Underwriting was done at thebranches and claims centralised at thedivisional offices.Our Divisional Office had 12 branchesspread all over Telangana in AndhraPradesh. The first claimant who cameto see me was a lorry owner. He seemed
requirements. It requires special skillsto get the insured round to meeting withthe requirements for a claim since,from the insurer's point of view, everydocument and procedure is important.When I was posted to the claimsdepartment I realised I had to learnunderwriting first. That is, whateverlittle there was to learn of it, since itmostly meant being familiar with thecontents of the tariff book and knowingwhere to look up a rate! When you startprocessing a claim, you begin with thepolicy to first understand what iscovered and what is not. Processing ofclaims in general insurance could besimple or could get extremelycomplicated. While an insurer canindicate the documentation for a claim,it can never be exhaustive.Claims vary widely and, along with it,documentation. However, it isnecessary for an insurer to indicate toa policyholder even while a policy isissued as to what documents are, ingeneral, required in the event of a claim.Policies are also expected to indicatethe duties of an insured precedent to aliability and consequent upon a claim.It is important for a policyholder to gothrough the policy when he receives itand not just when there is a claim. It isseen that 'the small print' or theclauses, conditions and exceptionsgiven in the policy document are rarelyread till a claim arises.Let us have a look at what the IRDAProtection of Policyholders' InterestsRegulations (2002), which applies toall insurers, insurance intermediariesand policyholders, has to say aboutdisclosures and duties. Apart fromstipulating disclosures at the point ofsale and matters to be stated in lifeand general insurance policies, theregulation deals with the claimsprocedure in both cases. One of themain stipulations is that "a policy shallstate the primary documents which are
For a claim to be processed smoothly and quickly, the insurer should ensure that its claims handlingstaff are skilled and knowledgeable avers Yegnapriya Bharath.
Handling Claims- The Dharma of the Insurer
23irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006
ISSUE FOCUS
not, information is sought on a piece-meal basis testing the patience of theinsured. Every insurer must strive tohave in place a claims handling systemthat creates the least drag in theprocessing chain. Insurance companiesmust leverage technology andcommunication tools to ensure that thewhole process is speeded up.Many a time, delays in claims disposalare a result of defective policies ratherthan due to inefficiencies in the claimshandling system. A claim may reach adeadlock because of a policy wronglyunderwritten. Insurers tend to sit onsuch claims rather than arrive atsolutions thus driving claimants toapproach adjudication channels. Itwould be worthwhile for insurers to
analyse awards or judgements insimilar cases that are in the nature ofprecedents and learn lessons fromthem. Unfortunately, what happens isfar from it, and an insurer is willing towait for the claim to go through thewhole legal system and, at the end ofthe day, not only pay the claim but alsoa fat amount towards interest.In the twenty years since I dealt withmy first irate claimant, I have dealt witha variety of cross complainants. Themiseries of claimants are compoundedby the time they approach redressalchannels other than that of theirinsurer. Not only have their claims beenturned down, their complaints have notreceived the deserved attention, they feel.Some complaints surely are notjustified but many are. It must befrustrating for customers to have to gofrom channel to channel.
The effectiveness of thegrievance redressal procedurealso needs to be monitored by
not only the seniormanagement but also theboard; and improvements
effected wherever necessary.
normally required to be submitted by aclaimant in support of a claim." In caseof general insurance, it stipulates thatan insured or the claimant shall givenotice to the insurer of any loss arisingunder the contract of insurance at theearliest or within such extended timeas may be allowed by the insurer. Onreceipt of such a communication, ageneral insurer shall respondimmediately and give a clear indicationto the insured on the procedures heshould follow.In cases where a surveyor has to beappointed for assessing a loss/claim, itshall be so done within 72 hours of thereceipt of intimation from the insured.Where the insured is unable to furnishall the particulars required by thesurveyor or where the surveyor does notreceive the full co-operation of theinsured, the insurer or the surveyor asthe case may be, shall inform in writingto the insured about the delay that mayresult in the assessment of the claim.The surveyor, in turn, shallcommunicate his findings to theinsurers within 30 days of hisappointment. In special circumstancesa surveyor may take time up to sixmonths to furnish his report, but onlyafter intimation to the insurer, andtaking his special permission.An insurer may call for an additionalsurvey report if the circumstanceswarrant it. On receipt of the surveyreport or the additional survey reportas the case may be, an insurer shallsettle a claim within 30 days offersettlement of claim to the insured. Ifthe insurer decides to reject a claim, itmay do so within 30 days. For promptsettlement of a general insurance claim,it is important that all parties involvedco-ordinate and co-operate with eachother. For instance, the insurer and thesurveyor or a third party serviceprovider, as the case may be, shouldensure that they co-ordinate with eachother and deal with the insured througha defined channel.Quite often it is seen that bothcommunicate with the insured withoutkeeping the other informed. Sometimesthe same information may be soughtby both the parties. More often than
The Grievance Cell of the IRDAfacilitates resolution of grievances bytaking up the complaints with insurersfor examination/re-examination.It does not decide on claims nor does itadjudicate. Generally complainantsare advised to approach the InsuranceOmbudsman for cases that come underthe purview of that institution.Otherwise the complainant has toapproach either the consumer courtsor the civil court.The innumerable complaints we comeacross indicate the need for a changein claims handling systems andprocedures. The boards of companiesneed to be involved in the claimsmanagement philosophy of thecompany. The effectiveness of thegrievance redressal procedure alsoneeds to be monitored by not only thesenior management but also the board;and improvements effected wherevernecessary. That the existing systemsin most insurance companies need tobe made more effective and perhapsneed overhauling is evidenced by thefact that there are increasing numberof complainants approaching theOmbudsmen and the judicial channels.Can we not learn lessons from thecases disposed of by the variousredressal mechanisms?Efficient claims servicing is vital to aninsurance company and the very reasonfor its existence. Mahatma Gandhi, theFather of the Nation attached greatimportance to the consumer. He said:"A customer is the most importantvisitor on our premises. He is notdependent on us. We are dependent onhim. He is not an interruption to ourwork; he is the purpose of it. We are notdoing him a favour by giving him anopportunity. He is doing us a favour bygiving an opportunity to serve him."It would be a tribute to Gandhiji ifevery customer were made to feel so.
The author is Officer on Special Duty,Grievances (Non-Life), IRDA. The viewsexpressed in the article are her own.
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200624
ISSUE FOCUS
Introduction:
Life insurance is an emotional businessUnlike in general insurance, there aresentiments involved since it is thequestion of a human being - whether he/ she has a critical illness or a severedisability or he / she is dead [in such acase for the family members]. If we, asinsurers, delay a claim, then the familyis unnerved and frustrated because aperson is suffering and the insurer hasnot kept up his commitment. If we pay,then there is a feeling of gratitude, whichcan be personally seen in many eyeswhen they receive a cheque. If we reject,then the family members [in case ofdeath / disability] feel low and dejectedbecause there is a sense of being cheated[though from an insurer's point of view,we may be technically and legallycorrect]. In case of an illness, the clientfeels that the purpose of his / herinsurance is lost because the insurerhas not paid his / her claim whenrequired most. It cannot be expected ofthe client to step into the shoes of theinsurer to see the correctness or fairnessof the settlement. So either way[whether we pay or reject or keep itpending], there is always a veryemotional outcome.
Primary Role of an Insurer:
The primary role of an insurancecompany is to settle claims as that isthe value add we provide to our clients.However, this does not mean paying allclaims promptly but rather to pay thegenuine claims and reject the nongenuine claims. Thus the mostimportant aspect to be understood hereis the word 'settle'. "Settling a claim"does not necessarily mean paying a
While there is an incidence of fraudulent attempts in enforcing claims, insurers should take care notto put a genuine claimant to hardship opines Ganesh Iyer.
Claims Settlement In Life Insurance- Need For Personal Touch
If an insurer pays all claimsirrespective of the eligibilitycriteria, then either it willnot remain in business or
have to increase the rates forother policyholders.
claim. A claim can and should berejected if it is not legally payable.If an insurer pays all claimsirrespective of the eligibility criteria,then either it will not remain inbusiness or have to increase the ratesfor other policyholders. Thus by payingimproper claims, the pool of genuinepolicyholders is disadvantaged.
Claim settlement is not a straightforward process. The basic premise is
to pay all "right" claims and reject all"wrong" claims. But that is easier saidthan done. Deciding on what is right orwhat is wrong is not an easy task.
What are the problems?
� The most problematic aspect, inmajority of the cases, is that the clientdoesn't know what he has purchasedand what the benefits are. Very fewpeople read the actual policy contractand understand its requirements andimplications, be it a literate class orotherwise.
� If problems in claims settlement wereto be given a rating, then probablycasual approach in proposal formfilling would be rated at 99%. A lifeinsurance proposal form is filled inlike a credit card application, wherejust the basic address etc. is given and
then signed off without evenpondering over the other fields in thelarger proposal form. The basic factthat a proposal form is the offer for acontract is forgotten.
� Apart from ignorance, many times theclient does not want to disclose thefacts and problems. Hence hepurposely does not discloseinformation in the proposal form.
� Not to mention about fraudulentintentions.
A few examples :
i) Suffering from illness at the time ofthe application itself.
ii) Smoking / Drinking / Tobacco habitsnot disclosed in the proposal form.
iii)Family history not disclosedcorrectly.
iv) Suffering from chronic / severeailments, viz., cancer, HIV, heart /kidney / lung diseases etc.
v) Fictitious Accidents, fake snakebites, murders, patient on the deathbed seeking insurance cover,insuring dead people, non-existingpeople etc. constitute a few examplesof frauds.
OUTCOME : Claim gets repudiatedon grounds of material non-disclosure /frauds.
Rural Area Problems :
India consists of a large part of ruralareas. Hence, invariably someproportion of the insured clients belongto this rural population. However, doingbusiness in the rural areas is not asmooth road, whether it is NewBusiness or claims. The difficultiesencountered are:
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ISSUE FOCUS
There is a high risk and abig financial underwritingissue with people takinginsurance covers from
various insurers withoutdisclosing the facts of the
existing covers.
a) Illiteracy and lack of understandingof the contracts.
b) Premium collection due to poorbanking facilities or sometimesinability to bear costs regularly.
c) Non-availability of medicalfacilities and records
d) The cost of doing business in theserural places
e) Information verification.
Claims investigations become costly,time consuming and difficult affairs.Getting evidence in the rural areas isvery difficult. Issuance of deathcertificates by the local panchayats andthe doctors is more from a human anglethan from the factual angle, due toproximity of relations. Sometimesthere are no authentication checksinvolved in the issuance of suchcertificates. In some cases, there aredelays in notification of claims to theinsurer, sometimes beyond more thansix months after the event, by whichtime the trail is very cold.
It is difficult to unearth frauds in therural areas due to a smallconcentration of closed people, who aresuspicious of any outsiders.
Snake bites are a relatively commonoccurrence in the communities and ifgenuine, would represent a properclaim. However, if a person dies from anon-disclosed illness but the body isbitten or is reported to have been bittenby a snake or any other animal, thenproving or disproving the same is anuphill task.
Non-Disclosure of ExistingInsurance Cover / MultipleInsurance Policies :
We have seen claims where thepolicyholder has taken a number ofpolicies from different insurers. Thereis a high risk and a big financialunderwriting issue with people taking
insurance covers from various insurerswithout disclosing the facts of the
existing covers. The industry is nowrecognizing this and is sharing claimsinformation. In such cases, the personis more valuable dead than when alive.
Quality of Medical Records:
The developed countries around theworld have Government health schemeswhich require public funding. Alongwith this go extensive computerizedmedical histories kept by the doctorsand the government agencies. This is acritical tool in these countries for thediscovery of non disclosures byinsurance companies. This does notexist in India where the individualkeeps the records and not the doctors.
The biggest problem in India is that wedo not have a proper medical recordssystem. Hence, getting any medicalhistory is very difficult. To prove non-disclosure of existing ailments, we haveto rely on the client only to give his / hermedical records.
Judicial System:
The policyholders or their nominees (inthe event of death of the life assured)are insulated well by our judicialsystem. The clients can approachvarious forums for enforcing their rightsviz. the Insurance Ombudsmen, theDistrict Consumer Forum, the StateConsumer Forum, the NationalConsumer Forum or any Court etc. inthe event of their being not satisfied by
the insurer's decisions. (Of course, thesefacilities are over and above the optionavailable to the client to apply to thecompany for a reconsideration of thedecision).
However, the judicial system,sometimes in its attempt to protect theclients, poses some hurdles for theinsurers. At whatever forum mentionedabove, the insurance companies have tohave very strong cases as the tendencyis to support the member of the publicwho has suffered bereavement.
The ombudsmen scheme is a very goodone in principle and is also a very lowcost option to the clients. It is also afast track forum. Despite all this, it doescreate, at times, some problems for theinsurers. Ombudsmen sometimes whiledeciding a case, go beyond the legaldefinitions and established courtrulings.
The insurers cannot challenge thedecisions of the ombudsmen though theclient has an option to appeal if he isnot satisfied.
It sometimes becomes practicallydifficult for the insurer when the courtsexpect the insurer to procure the primaryclaims documents or past medicalrecords of the life assured on behalf ofthe clients, who refuse to produce thesame, for whatever reasons. Itsometimes seems unfair when non-production of documents is used as adefence by the clients and duly supportedby the courts.
Control System:
In order to have proper documentationand control, it is advisable to keeprecords of all inward and outwardcommunication. Wherever necessary,use Regd. AD system only and keepacknowledgments handy.
Pay cheques only ear-marked to aparticular bank account only, e.g., "Payto Mr. XYZ, A/c. 12345, ABC Bank,
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ISSUE FOCUS
Importance of disclosure ofmaterial facts has to be drilledinto our system. Only whenall proponents/policyholders
believe in giving the facts, oursystem will improve on the
claims front.
Mumbai". This will give you a propertrack of the movement of claim proceeds.
Personal Touch:
Be courteous in your communications,written or verbal. Feel for the client andthe family. Be a part of the grief. Try tohand over the claim cheques and letterspersonally [somebody from thecompany] to the family. This adds valueto your claims processing and gives it apersonal touch.
Training:
Constantly train your sales force aboutthe importance of claims and makethem understand the problems faced bythe claims department. Importance ofdisclosure of material facts has to bedrilled into our system. Only when allproponents/policyholders believe ingiving the facts, our system will improveon the claims front.
It won't be out of place to mention herethat most claim cases, which weresubjected to medical examinationsduring the underwriting stage or thoserisks accepted by the company based onknowledge of existing health problemsget through easily and smoothly. It is
mainly the non-medical cases withincorrect information in the proposalforms that get stuck at the claims stage.
Conclusion:
Life insurance business is a seriousbusiness meant to achieve a socialcause. The insurers are striving hardto achieve this purpose. They need thebest support from various systems andchannels to achieve this goal so that the
social security of our country can marchin the right direction.
Although the majority of people arehonest hard working people, if there isa way of people enriching themselves
The author is Chief Manager, Claimsand Risk, Kotak Mahindra Old MutualLife Insurance Company.
at another's expense, a certain minoritywill take advantage of that especiallyif it is a big impersonal insurancecompany who is seen as having a lot ofmoney.
But all said and done, what is to beremembered is:
� We are in this business to settle allfair claims.
� We have to render our best claimsservices to all clients at all times.
� Do not punish all the people for ahandful of wrong doers.
� All claims are genuine unless provedotherwise.
� Insurance Claim is not the end - butthe beginning of a new business.
27irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006
ISSUE FOCUS
different decisions on the similarcases on different occasions bydifferent personnel. Like wise theprior review of a claim at a higherlevel before its repudiation mayensure a fair decision. Appliedwhich the discretion of the dealingpersonnel would vary widely fromcase to case booking the outstandingliabilities, reversing the entries onrepudiation
b) Expertise of the personnel: Quiteoften the personnel, especially thenew entrants, working with theclaims settlement section doconsider that the settlement ofdeath claims is drainage on thesources of the insurer. The insurershould let the personnel know thatthe settlement of claims is a part ofthe business of life insurance. Theinsurer shall appraise its personnelthe importance of settlement ofclaims periodically to inculcate animpression that it is the mostpromising part of their business.And all personnel at all levels,should service the claimantsempathetically. Further theexpertise of these personnel will befelt more when the settlement ofclaims under critical illness riders/hospital cash benefit riders arises.The definition part of the diseases,the exclusions, the acceleratedbenefits, waiting period and survivalperiod are important areas thepersonnel should pay attentionwhile settling these living benefits.Convincing the claimants whosepolicy stands repudiated is achallenging task. If the personnel ofthis section are not specificallytrained on this aspect, there is adanger of the claimants losing faithin the system of life insurance.An unsatisfied customer is aperennial liability to the insurer.The existence of the clientele is agreat source of new business avenueto the life insurers. The retainingcapacities of the life insurers will
Ensuring Fair Claims Management
If the personnel of Claims Settlement section are not specifically trained on theaspect of prudent claims settlement, there is a danger of the claimants losing faith
in the system of life insurance, argues D V S Ramesh.
- Issues for Quick Disposal
The basic tenet of philosophy on whichthe concept of life insurance evolved is;as the event of a death is certain in one'slife, it is the undesirable consequencesthat the dependents are likely to face,that can be minimized by means ofeconomic tools like life insurance. Of allthose servicing aspects of a life insurer,the settlement of the claims occupies aprominent role, be it from theperspective of the insurer or from thepoint of view of the life assured/claimant. It is the life assured who isgoing to face the brunt of all the servicesof the life insurer during his life time incase of deficiency in the servicesrendered. A lacuna in the services of thelife insurer may be perceived by a policyholder as a potential threat to theassurance he reposed, as he cannotimagine his beneficiaries running frompillar to post for receiving the policyproceeds in the event of the policyresulting into a death claim. Thehapless policyholders who receivedeficient service quite often express thesame before the insurance companies'personnel.The life policies are considered as theestates of the life assured; it is the policyholder/life assured who has to managethe same, by paying the premiumregularly. And the life insurer on his partis expected to meet the liability ofclaims as and when they are due. For afair and equitable administration ofclaims, both the insurer and the insuredhave a role to play.Role of Insurer: Ensuring fair and quickclaims settlement is considered as oneof the objectives of the insurer's businessmission. In order to attain thesebusiness objectives the insurer plays aprominent role in establishing the bestoperational practices that include, interalia, a prudent claims managementpolicy; ensuring the expertise of thepersonnel involved in claims operations;monitoring the outsourced activitieswith reference to this specific activity ofoperation; and effective communication
etc. These issues are discussed in detailhereunder.a) A prudent policy: The life insurer
is expected to place a prudent claimssettlement policy for expeditioussettlement of the claim. This policy,inter alia, shall contain thestipulated time lags within which thepersonnel shall reply to the queriesof the claimants; the manner ofcalling for the requirements; themodus operandi of the conduct ofinvestigation if that claim warrantsone; the operational issues involvedwhile dealing with the various types
of claims like early death ones, minorcases, claims of annuitants, claimson health policies, riders etc.; thispolicy will have to be helpful like aguide to the dealing personnel. Themacro issues on this policy couldinclude the manner of settlement ofex-gratia claims; manner ofconducting the claims investigation;the prerequisites for repudiation ofthe death claims like prior review,constitution and composition ofclaims review committees etc.Placing these issues in the claimspolicy of the life insurer will alsoindicate the best governancepractices adopted by the life insurer.In the absence of such a clear cutpolicy, there is a possibility of theindividual discretions prompting thelack of fair play. For e.g. Absence ofex-gratia policy may result in
Ensuring fair and quickclaims settlement is
considered as one of theobjectives of the insurer's
business mission.
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200628
ISSUE FOCUS
depend on the satisfactory servicesthey render to their customers duringthe tenure of their policy life. Anexisting customer is considered to bemore valuable than a new customer.By virtue of its business, the newbusiness always results in a strainon the reserves of the life insurerowing to the factors influencing highcosts of initial expenses. The numberof death claims, especially the earlydeath claims, prompts the life insurerto re-look the underwriting policyadopted by him. It also hints atmonitoring the quality of newbusiness brought in by theintermediary. The claims personneldo play an active role in recycling theclaims proceeds towards the newbusiness, like, influencing thepolicyholder whose policy matured toopt for an immediate annuity plan.However, the insurer has to take carethat this should not result in anyunethical practices like compellingthe claimant to necessarily ploughback a part of the claim amounttowards the new business premium.
c) Information on the documents:The life insurance document whichis considered as an evidence ofinsurance contract has to contain theterms and conditions governing thesettlement of a claim, be it a deathclaim or a maturity claim. Though,generally the life assured's attentionis not drawn to this part of thedocument during the prime of his life,it is expected to cover thecomprehensive requirements of anideal insurance claim. These contentswill be quite handy to the claimantsat the time of lodging the claim. Ifthe contents of this part of thedocument are made self explanatory,the level of dependence of claimantson outsiders would be minimized.The same is the requirement ofRegulation 8 (1) of IRDA (Protectionof Policyholders' interests)Regulations, 2002.
d) Communication: Communicationplays a prominent role in theadministration of claims especiallyin the death claims. Thecommunication received by a haplessclaimant will be a great source ofrelief. At every stage of
communication, the insurer has toinfuse a sense of faith in the mind ofthe claimant. Even while repudiatingthe death claim the insurer has toinject a source of faith in the systemof ombudsman. It shall be adoptedby the life insurers as a prudentpractice voluntarily. The insurershould draw the attention of theclaimant to the available redressalmechanisms like claims reviewcommittees; ombudsman etc. whilesending a convincing communicationto a claimant whose death claim isrepudiated. A death claimcommunication to the wrong personlands the life assured in anembarrassing situation. Whilecalling for the requirements, the lifeinsurers are expected to exercise
maximum care and ensure that allthe requirements are called for inone go, instead of a piecemeal basis.However, based on the need, the lifeinsurer shall have to call for thefurther requirements to maintain aprudent claim settlement policy. Thelife insurers further are expected toexercise maximum caution at thetime of underwriting the policy itselfwhile admitting the age of the lifeassured. Calling for the age proof ofthe deceased policyholder from theclaimants of the policy is nothing butsubjecting the beneficiaries toavoidable hardship. However, thestatute empowers the life insurer tocall for the proof of age of the lifeassured at any time as per section45 of Insurance Act, 1938.
e) Claims notices through callcenters - Issues involved: It couldbe that the personnel who areattending to the calls of thecustomers may not be professionalsin the subject of insurance. The lifeinsurer should ensure that thepersonnel of the call center are awareof the intricacies of claims aspectsof the life insurer. While receiving theclaims notices helps the insurer forexpeditious settlement, it would bebetter for the insurer to re-confirmparticulars of the claimants for thesecases (notices received through callcenters) before proceeding further.Pleasantries exchanged by thepersonnel of call centers should varybased on the type of calls they receive.While it should be a pleasure toreceive a maturity claim notice/query, the vocal expression shoulddiffer on receiving a notice of deathclaim. The best intentions of thepersonnel in looking forward toserving the claimant again in thecase of a death claim would certainlyinvite his wrath for the misplacedcourtesy. The insurer cannot disownresponsibility for a fault of theoutsourced personnel. Hence, theinsurer shall pay personal attentionon the training inputs of thesepersonnel as well.
f) Early Claim investigations - Issueswhile outsourcing: Investigations ofearly claims is another area ofconcern to the life insurer. It is theresponsibility of the life insurer toensure that the business carried outby him is not exploited by fewindividuals by exercising adverseselection against him. Theconsequences of adverse selectionexercised by a few individuals wouldburden the costs of life insurance tothe public in general. Also from thepoint of view of prudent businesspractices no business ethics willallow its businesses to be exploited.It is the minimum risk managementpractice of this class of business, tocause an investigation to find out theveracity of the claims received duringthe early stages of a life policy.However, statute has placed certainrestrictions, which are discussed inthe succeeding paras, on calling inquestion the policy of life insurance
The retaining capacities ofthe life insurers will dependon the satisfactory services
they render to theircustomers during the tenure
of their policy life.
29irda Jour Jour Jour Jour Journal, December 2002nal, December 2002nal, December 2002nal, December 2002nal, December 2002 29
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006
ISSUE FOCUS
It would be better for the lifeassured specifically
bequeathing the proceeds ofthe life policies while
executing his will as thenominee will be only giving
a valid discharge to themonies received from the life
insurer.
benefit itself; or failure to have bankaccounts are a few constraints thatare faced by the claimants of thissection of business which is also anarea of problem for the insurers whilesettling these types of claims.Availability of death certificates isalso a cause of concern in somehamlets. There are instances thatthese sections of society send thephotos of the dead bodies taken alongwith their beneficiaries as proof of thedeath of the life assured. A certificatelike the one from the last attendedphysician is a far cry in such cases. Inview of these difficulties the insurersgenerally waive these requirementswhere the amount of claim involvedis relatively low. However, thepotentiality of a possible adverseselection against the insurer is verymuch possible. Ensuring that theclaim amount reaches the rightful
claimant by way of drawing theinstruments in their favour who donot possess a bank account is a toughtask. However, issuing theinstruments in favour of the nodalagencies will have a potentialproblem of not reaching the hands ofthe claimants. This system ofsettling the claims could even exploitthese claimants. Looking towardsother avenues of settling the claimslike sending the monies throughpostal orders, encouraging theopening of the savings accounts withpost offices, banks which in turnencourages the savings thrift, with thehelp of the local nodal agencies aresome of the ways out for settling theclaim. Establishing a liaison with
by the life insurer. The privatizationof the insurance sector has thrownopen this area of operation as asource of income to someinvestigating agencies, surveyorsand other individuals. Conductingthe early claims investigation is aprudent operational practice of thelife insurer. However, when it isoutsourced, the life insurer isexpected to choose the best agencies/individuals with talented trackrecord.The possibility of individuals orassociations involved in this activityto indulge in some unethicalpractices like frauds, demandingkickbacks for a favourableinvestigation report, compelling theclaimants to take a fresh lifeinsurance policy on their own life etc.should be totally ruled out. Hence,the insurer's role in selecting theseagencies/individuals will be crucialfor ensuring a fair claims settlement.Individuals having a bad track recordon whom allegations are underinvestigation; individuals/entitiesthat are black listed by an insurancecompany etc. are a few that pose apotential threat for a fair claimssettlement. The life insurers shallhave a self regulatory mechanism toovercome these potential problemsby maintaining a data base of theseindividuals/entities through itscouncil. On the other hand, claimantsshall also be informed not tosuccumb to the influences of any ofthe organizations/individuals; andshould feel confident that theircompany is going to exercise itsdecision on admitting the claim onprofessional lines, in theircommunications to the claimants.
g) Settlement of Social SecurityClaims: Proactive settlement of socialsecurity claims is the socialresponsibility of life insurers. Thesesections of society, whose insuranceawareness is abysmally low, oftenconsider owning a life policy as a badomen to the family. Lack of properidentity of the claimants, existenceof several persons with the samename etc. are some of the issues thatare likely to be faced by life insurers.Not being aware of the insurance
agencies like Gram Panchayaths,reputed local NGOs who are workingfor the welfare of these hamlets/villages is another possible solutionfor the insurers.
Role of life assured: Though, the lifeassured/policyholder has a limited role,apart from making materialdisclosures while taking the policy andpaying the periodical premiums in time,there are certain issues which he toohas to take care of, for supplementingthe life insurer's efforts.� The life assured should let his
beneficiaries know the existence ofa life policy on his own life. Quiteoften the claimants may approachthe life insurer for a claim very late,coming to know about the existenceof a life policy belatedly on the life ofthe deceased. This could, however,happen in all the economic strata ofpolicyholders. It appears difficult toeducate the policyholders on thisaspect, but the life advisors play acritical role by maintaining apersonal rapport with the family ofthe policyholder in finding out aresolution of the problem.
� Nomination is considered to be oneof the easiest ways of settling theliabilities of the life insurers. Thelife assured shall ensure thenomination of the intendedbeneficiary to avoid a rival claimantapproaching subsequently.Settlement of the claim in favour ofthe real beneficiary will be a verytime consuming process and subjectto legal complications in the eventof a rival claimant approaching thelife insurer, this will ultimatelydefeat the very purpose of taking alife policy. It would be better for thelife assured specifically bequeathingthe proceeds of the life policies whileexecuting his will as the nomineewill be only giving a valid dischargeto the monies received from the lifeinsurer. The right to receive themonies is only personal and thenominee cannot own the fullbenefits; nor is this a heritableright. It would be appropriate for thelife insurers to bring to the notice ofthe life assured that the nomineewill not have a heritable right to themonies of the policy, in his
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200630
ISSUE FOCUS
As a part of fair claimsmanagement policy, the
insurers do not just deny aclaim on the ground of
misstatement if it is notmaterial to underwrite such
a risk.
communications with thepolicyholders.
Other issues:Liability of the life insurer: Unlike inother classes of business, a life insurershould carry his liability to pay the claimfor a good number of years. In order toachieve that, he is guided by thefollowing provisions of various acts.� Section 107 of Indian Evident Act,
1872 leaves the burden of provingdeath of a person known to have beenalive within 30 years, on the personwho affirms it. Hence, it is theclaimant who has to prove the deathof life assured under these provisions.
� When the question is whether a manis alive or dead; and it is proved thathe has not been heard of for sevenyears by those who would naturallyhave heard of him if he had been alive,he is presumed to be dead (Section108 of the same Act). In such cases,the burden of proving that he is aliveis shifted to the person who affirmsit. Thus, it is the life insurer who hasto prove that such person is aliveunder these provisions.
� Section 44 of the Limitation Act, 1963enables the claimant of a life policyto apply for a claim within three yearsfrom the date of death or maturity.However, in case of repudiating adeath claim the period of three yearswill be counted from the date ofrepudiation of such claims. Though,the provisions place a limit of threeyears, at times the liability could becarried for more than three years,when a death claim applied isrepudiated at the end of say; two orthree years, the claimant's time toproceed further would end only aftera further period of three years meansfive to six years from the date ofregistering the notice of death.
Section 45 of the Insurance Act: This isa protective provision in the InsuranceAct that restricts the insurer toarbitrarily repudiate the claims. As perthe provisions of this section, the insurercannot deny the claim after two yearsfrom the date of affecting the contracton the ground of suppression of materialfact at the time of taking a policy.However, the provisions enable theinsurer to deny the claim if it could prove
that the insured has suppressed amatter which is material to disclose, itwas with the fraudulent intent thematter was not disclosed and thepolicyholder was aware of suchsuppressed material matter. As a partof fair claims management policy, theinsurers do not just deny a claim on theground of misstatement if it is notmaterial to underwrite such a risk.Let us take a quick glance at some ofthe provisions of various sections andacts that are relevant to theadministration of claims:� As per Section 60 (kb) of civil
procedure code the monies payableunder an insurance policy on the lifeof a judgment debtor (a personagainst whom a judgment has beenentered) are exempted from
attachment. Thus these provisionsprovide immunity to both maturityclaims and death claims.
� Section 88 of the civil procedure codeenables the life insurers to pay to thecourt the monies of the claimspayable, in the event of a dispute fora claim by the rival claimants. Thisis known as interpleader suit. Theseprovisions will discharge the liabilityof the insurer.
� Married Women's property Act,1874 protects the rights of thebeneficiaries of a policy of lifeinsurers from the creditors of thedeceased policyholders. The extentof the statute is to safeguard the veryinterests of the beneficiaries in linewith the objective of taking such apolicy.
� Section 47 of the Insurance Act
enables the life insurer to pay to thecourt the proceeds of maturityclaims in the event of his inabilityto settle the claims due toconflicting claims or inadequateproof of title etc. It amounts to avalid discharge of the liability of thelife insurer.
� Section 47A empowers IRDA toadjudicate the dispute between thelife assured and the life insurer incase of a dispute of a life policywhose basic sum assured is notmore than rupees two thousand,which shall be final and cannot becalled in question in any Court.However, in view of the level of sumassured prescribed, there is norelevance of this section.
Regulator's role: Being the guardian ofthe interests of the policyholders, theregulator requires the insurers forexpeditious and timely settlement ofthe claims. Insurance Core Principle 25(ICP-25) prescribed by theInternational Association of InsuranceSupervisors (IAIS) requires thesupervisory authority to set theminimum requirements to insurersand intermediaries while dealing withthe consumers. This ICP furtherexplains that for a fair treatment ofconsumers, good claims resolutionprocess is essential. The IRDA(Protection of policy holders' interest)Regulations, 2002 stipulates the timelag for an expeditious settlement of theclaim. These regulations also requirethe life insurers to pay an interest ondelayed claims payments.Managing better claims managementis the lifeblood of the life insuranceoperation. Just as the proof of thepudding is in its eating, the sincerity ofthe players of this class of business willbe evident by the efficientadministration of the claimsmanagement.
The author is Chief Manager, Claimsand Risk, Kotak Mahindra Old MutualLife Insurenace Company.
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 31
THINKING CAP
For the purpose of this write-up, Idefine 'Insurance' broadly as a socialinstrument to provide economicsecurity to people as well as businessenterprises. Few of our economichistories ever tell us that it is theapplication of insurance principle,which has facilitated expansion andadvancement of modern economy andtechnology; with associated risks andabsorption of such risks.
Institutions within a society aretransitory. They flourish or languishaccording to adaptability to the temperof times. In the ever dynamic and fluidenvironment, particularly in the age ofrestlessness and socialexperimentation, the insuranceindustry must break from the grip oftradition and respond to the challengesof the new era. The new era demandsnew thinking. Students andprofessionals of the business must beequipped and prepared to examineconstantly and critically the basicsocial attitudes and values in thechanging environment. The need is toinitiate macro insurance studies andresearch in the relationship betweenthe principles of insurance andapplication of those principles withinthe socio-economic-politicalframework in which the insurance andinstitution operates.
Insurance business is so woven into thepeople's lives and economy that itdeserves special attention just as theprojecting likely issues need to beaddressed. Despite some changesinitiated to meet the pressing needsand demands of the public for somefundamental insurance protection in
The Future And 'Insuring' Services
In the ever dynamic and fluid environment; the insurance industry must break from the grip oftradition and respond to the challenges of the new era feels APPARAO MACHIRAJU.
- Need for a Fresh Look
an era of rising expectations, both theadequacy and quality of the insuranceservices have become the subject ofcriticism. There are some critics whoeven suspect as to whether burdened bythe static theory and practices developedin the past, the insurance industry hasfallen a victim to its own traditions whileloosing its own innovative spirit. Failureto act on internal initiatives and torecognize the social responsibility whichis inherent in the concept of insurancethat calls for keeping up to the needs ofthe public without outside stimuli hasbeen the subject of criticism byconsumer advocates.
The Common Minimum Program (CMP)of the United Progressive Alliance(UPA) includes a large number ofeconomic social objectives. The CMP canbe termed as a Charter of Economic andSocial Actions (CESA) to take Indianeconomy reforms further and tostrengthen the process of balancedgrowth. In the CMP, a reference has beenmade to the insurance industry, but thelimited reference has a very widerconnotation. The statement referred toabove such as social role and socialobligations of insurance companies,meeting social obligations throughstrong commercial performance,selectivity and strategic focus etc. havea strong bearing on insurancecompanies' functioning.
An expert group of CII (Confederation ofIndian Industry) has attempted toproject the size of the insurance marketover the next ten years to grow over toRs. 145,000 crores. An interestingaspect of the CII projections is that itexpects an exponential growth in the
pension business. The pension businessis projected to rise at 29% per annum,effectively translating into an expansionof over 12 times over a period of ten years.Growth potential of insurance industryhas been the topic of numerous reliablepresentations.
Important as life and health insuranceis today, its real progress is yet to come.A very large section of insurablepopulation remains to be insured in thecountry. In 2003, life insurance densityi.e. premium per capita, in USD was only12.9 as against the global density of USD267.1. Life insurance penetration i.e.premium as percentage of GDP in Indiawas 2.26 per cent as the globalpenetration level of 4.59, and India'sshare in the global market remainedbelow one percent (0.81 percent). Asmentioned earlier, the expert group ofCII has attempted to project the size ofthe insurance market over the next tenyears (Premium income Rs.145,000crore) translating into average annualgrowth of over 19.6 percent. Thepremium business from the pensionschemes is projected over 22.5 percent.It is estimated that health insurancemarket potential is a minimum of Rs.15,000 crore while so far only Rs. 1,700crore up to 2004-05 has been tapped.Only 3% of the population is covered byhealth insurance Projected potentialmarket remains latent unless theinsurance companies draw up a long-term strategic action plan incorporatingcommercial and social agenda takinginto account the context of current andemerging marketplace realities.
Breaking from the past
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200632
We are in a transitional stage. We needto focus on "on-transition facilitation".We need to address the issues truthfullybasing on unfiltered feedback as to whatis happening at all levels in order to beable to formulate appropriatestrategies. Most of the major problemsconfronting the life insurance businessin today's situation are marketingoriented and specially the intermediarychannels current and emerging.
The insurance industry has neitherclosed its ranks to practicingincompetents, nor established aninternal system for measuring orenforcing professional standards. Thepublic, by and large, have no otherrecourse than to believe thatincompetence or unethical practices area norm with which it must learn to livewith. Insurance services counselingcovering life and health insurance as avocation and career could advance andacquire stature and dignity in directproportion to the education/trainingreceived by those in business. It istherefore with education and trainingthat we no doubt need to be mainlyconcerned, the first and most importantstep in marketing methodology.
� We have recent history of marketinglessons to learn from (the USA andUK in particular) problems theinsurance companies faced in thematter of sales practices and heavyfines the companies had to pay. As aremedial measure they have nowInsurance Marketplace StandardsAssociation (IMSA), which hasformulated procedures to be compliedwith by the insurance companies.Insurance companies are to certifycompliance of these requirementsfrom time to time. There is also anindependent organization called Lifeand Health Insurance Foundation forEducation (LIFE), founded by theinsurance companies in USA topropagate through non-partisaneducation, media publications toeducate the public.
� We in India need to give a freshapproach to different practices vis-à-vis the current ones.
� Issues to be addressed:
i. Need to ally with academicinstitutions for introducingcollegiate/university leveleducation.
ii. Need to develop state of the arttraining institutes focusing onsales and marketingmanagement.
iii. Put in place scientific selection/recruitment of intermediaries.
iv. Market conduct regulationrelating to policy replacement asa preventive measure.
v. Promote, encourage professionalassociation of intermediariesand self-regulation concepts.
vi. Marketing support todistribution channels.
vii. Advertisement and salesmaterials that are clear as topurpose; and honest and fair incontent.
viii. Applied as well as basic researchin all aspects of marketing i.e.selection/retention of agents,lapsation of policies, consumerattitudes, and more importantlyfocus on net growth of businessperiodically.
ix. Claims by death: Thosebeneficiaries who are paid thesum assured should beinterviewed to know as to whatextent the funds help theirfamilies.
x. Maturity payments: The writerof this article disagrees withusing 'Claims' for maturitypayments. There should beresearch as to the duration of thepremium payments as againstthe full term of the contract. Itis suspected that most of thepayments are under paid uppolicies.
All the issues cited are as challengingas the marketing of life insurance; andaim at revitalization of product-drivenlife insurance sales with customer-centered approaches.
Most importantly we need to addressthe following issues once again in viewof the new contextual situation i.e.convergence of financial services.
� What is the nature of the businessin which we are engaged and whatshould be our goals and objectives?
� The insurance companies are tomeet just the life insurance needsor should they be engaged in thebroad business of meeting personaleconomic security needs?
� Even more, corporate financialservices should be included with themarketing portfolio of life insurancecompanies - including equityproducts - such as variableannuities, and mutual funds.
Also these issues lead to anotherfundamental question, namely, thefuture role of intermediaries. Are theygoing to be financial advisors in thebroader sense of the term; counsellingon personal life insurance, equityinvestments, and other financialmatters? or will we witness thedevelopment of life insurance companyagency staff composed of a variety ofspecialists in specific areas ofinsurance and financial planning?
The future however, depends oninstitution building process andprofessional service concepts put intopractice.
The author is Director, InternationalInstitute for Insurance and Finance(IIIF).
THNKING CAP
Just as we are going to the press, we areinformed that Mr.Apparao Machirajusuffered a massive heart attack; and passedaway. We deeply mourn his death; andconvey our heartfelt sympathies to thebereaved family.
MAY HIS SOUL REST IN PEACE.
irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 33
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irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 200642
STATISTICS - NON-LIFE INSURANCE
15.4 percent business growth in March 2006
G. V. Rao
PREMIUM 2005-06 PREMIUM 2004-05 GROWTH OVERINSURER FOR THE UP TO FOR THE UP TO THE CORRESPONDING
MONTH THE MONTH MONTH THE MONTH PERIOD
(Rs.in lakhs)
GROSS PREMIUM UNDERWRITTEN FOR the financial year 2005 - 06
Royal Sundaram 4653.72 45357.44 3422.42 33070.77 37.15Tata-AIG 7222.75 61238.59 3934.93 46886.82 30.61Reliance General 1766.43 16233.05 820.83 16168.42 0.40IFFCO-Tokio 11696.11 89610.97 5730.43 50128.10 78.76ICICI-lombard 12352.81 159199.58 6289.18 88516.71 79.85Bajaj Allianz 12276.39 128767.78 8395.64 85607.41 50.42HDFC CHUBB 2519.28 20237.41 2055.06 18383.74 10.08Cholamandalam 1128.44 22042.00 1485.69 17009.83 29.58New India 48054.00 476212.00 48962.00 421081.00 13.09National 32211.00 352400.00 38419.00 379991.00 -7.26United India 30721.00 314698.00 25521.00 294459.58 6.87Oriental 32231.00 351864.00 25457.00 301778.00 16.60PRIVATE TOTAL 53615.94 542686.82 32134.17 355771.80 52.54PUBLIC TOTAL 143217.00 1495174.00 138359.00 1397309.58 7.00GRAND TOTAL 196832.94 2037860.82 170493.17 1753081.38 16.24SPECIALISED INSTITUTION:ECGC 6453.57 57846.49 5441.94 51554.50 12.20
Performance in March 2006
The non-life industry grew in March2006 by 15.4 percent with anaccretion of Rs.263 crore. The bulkof the accretion has come in from thenew players that have added Rs.215crore. The established players, whohad performed spectacularly in thetwo previous months, addingaccretions of Rs.164 crore and Rs.133
crore, could only add Rs.48 crore totheir premium kitty in March 2006.National Insurance and New Indiatogether have dropped their renewalpremiums in March 2006 by Rs.71crore.
Oriental with an accretion of Rs.68crore, ICICI Lombard with Rs.61crore, IFFCO Tokio with Rs.60 croreand United India with Rs.52 crore are
a few of the major growth players inMarch 2006. Only Cholamandalamamong the new players shows a fallin its premium by Rs 4 crores.Among the established players,National's renewal premium hasdropped by a substantial Rs.62 croreand that of New India by Rs.9 crore.
ECGC, the specialist insurer hasraised its premiums in March 2006by over Rs.10 crore.
Note: Effective October, 2005 the mode of presentation of non life premium numbers stands modified. Since ECGC isproviding cover exclusively for credit insurance, inclusion of the business underwritten by it with that of other insurancecompanies was reflecting an inaccurate position with respect to the industry as a whole. Henceforth premium underwrittenby ECGC would be indicated separately.
Report Card: GENERAL
43irda Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006 Journal, May 2006
STATISTICS - NON-LIFE INSURANCE
Performance up to March 2006:(FY 2005-2006)
The performance up to March 2006provides a view of how the non-lifeindustry has performed in thefinancial year 2005/06 on aprovisional basis. The year has endedwith a robust growth of 16.2 percentand the gross written premium hascrossed Rs.20,380 crore. Two newplayers, ICICI Lombard and BajajAllianz, have crossed the premiummark of Rs.1000 crore in the financialyear.
The industry has added Rs.2848 crorein accretion to cross Rs.20,000 croremark. Five players have dominatedthe growth scene during 2005/06;ICICI Lombard has added Rs.706crore, New India Rs.552 crore,Oriental Rs.502 crore, Bajaj AllianzRs.432 crore and IFFCO TokioRs.395 crore. Cumulatively, these fiveinsurers have added Rs.2587 crore tothe overall growth of Rs.2848 crore.
National Insurance has dropped itsannual renewal premium in the year2005/06 by about Rs.276 crore thatrepresents over 7 percent of itsprevious year's business.
ECGC the specialist insurer hasrecorded a growth of 12 percent.
Market Share:
The new players have garnered amarket share of 26.6 percent up from20.2 percent in 2004/05. ICICILombard has improved its share from5 percent to 7.8 percent; Bajaj Allianzhas improved its share from 4.9percent to 6.3 percent. Most other newplayers have also improved upontheir market share.
Prospects:
Competition for business andcustomers is likely to heighten in the
financial year 2006/07, consideringthat there is likely to be competitionon price front as well for most coversin 2007/08. Accumulating sizeablepremium and a larger number ofcustomers right now in 2006/07 willsurely enhance the ability ofrespective insurers to hang on totheir customers that are profitableand large.
National Insurance that maintaineda low premium profile is likely to stepup on its growth strategy in 2006/07. Reliance has lately shown signsof attempting to raise its marketshare. These two insurers may bringin a more fierce competitive spirit tothe market in 2006/07.
The induction of new players haschanged the market scenario that isnow more vibrant and moredemanding of better customerservices. One expects the growth ratein 2006/07 to get a further boost, nowthat the non-life industry has beengrowing in its profile and morerapidly than before. It is likely that
The author is retired CMD, The OrientalInsurance Company Ltd. He may becontacted at [email protected]
the new players will aim for amarket share of 35 percent or more in2006/07.
If customer services levels improve,the market can hope to attain agrowth rate of 18 percent or morein 2006/07. Times have never beenas bright for the non-life insurersas now. The market opportunitiesneed more intensive harnessing bysustained efforts. Market has shownenough dynamism that thischallenge can be met.
The interesting question is: 'Is thenon-life industry poised for a growthof 20 percent or more in 2006/07?'
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NEWS BRIEFS
The investment yields of public and private sector
insurance players in the non-life arena have gone up in the
past financial year; it is reported, as a result of the rise in the
yields of government securities. As against a mean yield of
6.5 per cent on investments for insurance companies during
the year 2004, the average yields on investment during the
last fiscal were in the region of 8 percent.
While the insurers were not allowed to take part in the call
markets in the last fiscal, they extended support to the banking
sector through Collateralized Borrowing and Lending
Obligations (CBLO) at rates close to 8 per cent during the last
few weeks of the financial year. It is this exercise that is
responsible for the insurers enhancing their profits, reportedly,
as the CBLO market shot up to Rs.10,000 crore.
The improvement in the investment earnings, however,
are not going to let the insurers take it easy on cutting
underwriting losses; and the discipline that is associated
with it is going to continue. The profits earned from the
investments would be put to use for strengthening the capital
of the insurers and for augmenting their solvency.
RISE IN INVESTMENT EARNINGSFOR INSURERS
It is reported that a huge majority of the overseas
travelers really do so without obtaining travel insurance.
While the number of overseas travelers is rapidly
expanding, the incidence of a meager percentage that
actually insure themselves is a big cause for concern. Among
those who go for insurance voluntarily are those who are
regular or at least frequent travelers; students for whom it
is mandatory to have insurance; or such of those who intend
a longer stay abroad.
Travel insurance provides protection against several
risks like baggage loss, passport loss, acute financial
requirement and medical expenses. With problems like
environmental changes, dietary changes or the fall-out of
severe jet-lag conditions and the associated susceptibility
to fall sick; health risk is the most vital component of the
travel insurance. With medical facilities proving out to be
too expensive in several western countries, it is unfortunate
that the majority do not appreciate the value of having
sufficient insurance in place.
Overseas TravelWithout Insurance
Bancassurance, which aims at distribution of insurance
products through banks, is proving out to be a very
successful distribution channel in the liberalized insurance
scenario. Insurance activity is expected to occupy one-third
of banks' fee-based income reportedly, in the not-too-distant
future. Apart from providing a third of the fee-based income
for the bankers, bancassurance is also expected to be
channel responsible for around 13 per cent of life business
and 5 per cent of non-life business, reportedly, in the next
five years.
Bancassurance, in fact, contributes quite a large chunk
of the total new business among the private life insurance
companies and is growing rapidly. Insurers are presently
contemplating an enlarged reach to rural and semi-urban
areas through co-operative banks and regional rural banks
to act as a catalyst for further growth in these areas with a
huge potential, it is reported.
Bancassurance:
The New Age Distribution ChannelThe Brihanmumbai Municipal Corporation (BMC) has
introduced a novel scheme for the regular tax-payers ofMumbai city. It proposes to offer insurance cover to morethan a million registered property tax-payers in order toboost collections. The scheme is likely to cost BMC anamount of Rs.1.5 crore reportedly.
Property tax is the second largest source of revenue forthe corporation under which BMC collects around Rs.800crore per annum. The incentive that is being introducedpresently envisages widening the corporation's tax-baseas also mopping up revenue. The corporation would pay thepremium in cases where there are no tax arrears in theprevious financial year.
It would apply to residential properties assessed bythe corporation and includes assessees living in their ownproperties, members of housing societies that are assessedon a building basis and individual tenants in tenantedbuildings. Under the scheme, four members of the familyof the honest tax-payer would be covered against deathand disability, as per reports.
INSURANCE AS INCENTIVE FOR
TAX-PAYERS
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NEWS BRIEFS
Organizers of major events are becoming additionally
sensitive towards obtaining proper insurance for the
successful completion of the events, particularly in the
backdrop of the recent colossal fire tragedy at Meerut, it is
reported. There is a strong feeling in the industry that such
events should compulsorily be brought under insurance.
When a sanction is being accorded for such an event, it
should be ensured that the event is insured against the
possible perils. The covers could be brought under three
areas viz. fire and personal accident cover; public liability
cover; and purchase protection cover. Fire and personal cover
insures the space and structure created for the event
basically and could be extended to cover earthquake and
terrorist attacks. Public liability cover insures the visitors
against death, disability and injury due to short circuits
and stampede; and purchase protection cover insures the
goods and cash collections made, against burglary or
mishap.
There are several policies that would provide an
additional and optional cover for the cancellation of an event
also. Depending on the exact nature of the event, cancellation
risk is covered either due to the death of the performer in
case of individual shows; or cancellation of a cricket match
or the like, due to rain. Premium depends upon the length of
the event (number of days) and other related factors. There
is growing demand for such products in this world of
increasing uncertainty, reports say.
LIFE INSURANCE POLICYAS AN INCENTIVE
Government of Andhra Pradesh has come out with health
insurance scheme for Below Poverty Line (BPL) families
that covers farmers, artisans and their families at a highly
subsidized premium, as per reports. It envisages bringing
about 40 lakh enrolled BPL families under the scheme.
The scheme is being worked out on the lines of Universal
Health Insurance Scheme (UHIS); and the services of self-
help groups are being roped in for enrolment. A statewide
campaign is being contemplated in order that all the eligible
BPL families are brought under the scheme, reportedly.
Government Health Insurancefor the Poor
In order to act as an incentive for the Maoist rebels whoare prepared to surrender arms, the Jharkhand governmentis offering a life insurance cover up to an amount of Rs.10lakh, reportedly, besides the promise of free land and a housefor every rebel who gives up arms.
The Home Minister of the state is reported to have saidthat this was the best of the kind in the country and hopedthat it would act as a measure to curb Maoist violence. Apartfrom the life insurance coverage, the government policy alsopromises a payment of Rs.25,000 in two instalments and astipend of Rs.2,000 per month for two years.
GROWING AGROWING AGROWING AGROWING AGROWING AWWWWWARENESS ABOUTARENESS ABOUTARENESS ABOUTARENESS ABOUTARENESS ABOUTINSURANCE FOR EVENTSINSURANCE FOR EVENTSINSURANCE FOR EVENTSINSURANCE FOR EVENTSINSURANCE FOR EVENTS
Mortgage insurance is a profitable proposition for allthe parties involved viz. the home loan borrower, thefinancier and the market. Fundamentally, the mortgageguarantee product enables the customer to have access tofunds on much softer terms and on easier margins. At atime when property prices are touching the sky, thismortgage insurance product, reports say, would provide theright solution.
Mortgage insurance products help a person to buy a housewith a low down-payment. The normal margin that lendersinsist is around 20 per cent, which sometimes proves to betoo unaffordable for the borrower; and in this context,mortgage insurance is a big help. These mortgage productsare being introduced in the Indian market, reportedly, forthe first time; by US-based Genworth Financial Inc.introducing residential mortgage guarantee products.
National Housing Bank (NHB) reportedly had a tie-upearlier with four international corporations (UnitedGuaranty Company; The Asian Development Bank; TheCanada Mortgage and Housing Corporation; and TheInternational Finance Corporation) forming India MortgageGuarantee Company (IMGC) for bringing a similar productinto the Indian market. However, it could not be finalizedas yet for want of proper regulatory framework in operatingsuch a mortgage insurance company.
The primary product of the company would be a mortgageguarantee that would provide coverage to mortgage lendersin India in the event of a borrower default. It would be athree-way contract between the borrowers, the lenders andthe mortgage guarantor. The scheme aims at allowinglenders to penetrate broader market segments with betterterms and conditions thereby expanding home ownershipin the country.
The Benefits ofThe Benefits ofThe Benefits ofThe Benefits ofThe Benefits ofMortgage InsuranceMortgage InsuranceMortgage InsuranceMortgage InsuranceMortgage Insurance
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There is suddenly a huge demand for investmentsin domestic bonds rather than the foreign bonds by lifeinsurers in Japan, it is reported. A substantial raise inguaranteed yields on new insurance policies anddividends to reward policyholders is on the cards as aresult of higher investment returns for the life insurers.In light of the increased investment returns, it isfurther reported that a reduction in premiums is likelyas policyholders would be disillusioned if the benefitsfrom increase in returns is not passed on to them.
Several top-notch life insurers are planning toincrease their investments in bonds by several billionyen. For life insurers, it has been a history of negativespread between relatively high yields guaranteed topolicyholders and low investment returns, as a resultof abysmally low interest rates. As a result of the steadyeconomic recovery and an end to the quantitative easingpolicy by the central bank, long-term interest rateshave begun to rise thereby providing life insurancecompanies with a better environment for boostinginvestment returns, reportedly.
Higher Demandfor Domestic Bonds in Japan
United Kingdom's insurance regulator, The Financial
Services Authority (FSA), has fined a broker for failure to apply
for its approval with regard to a management level employee
who was convicted earlier for fraud, reports say. It is alleged
that the employee has committed a fraud also while working
for the broker. The regulator fined the broker for the breach of
rule and said that if the approval process has been adhered
to, the previous convictions would have come to light and
the subsequent alleged fraud could have been avoided.
The regulator is reported to have further added that
compliance with these requirements is vital for the fulfillment
of the objectives; and the failure to seek its approval in respect
of the employee was an isolated example. The broker is a
specialist in classes like aviation; marine; casualty; and
professional and financial risks. The regulator granted a
reduction in the fines it has imposed in view of the early
settlement of the case at stage one of the enforcement
procedures. Reports say that although the fine is relatively
small, it emphasizes the importance of ensuring to obtain
FSA approval in such cases.
LONDON-BASED INSURANCE
BROKER PENALISED
The emphasis in the World Takaful Conference at Dubai was on the need for sound regulations for the growing
markets. Speaking at the conference, Dr. Habib Al Mulla, Chairman of the Dubai Financial Services Authority (DFSA)
mentioned that sound regulation is an integral part in takaful and further added that markets should be open and
dynamic in order to induce innovation and competition, ultimately leading to consumer benefits. Further, he is reported
to have said that compliance to Shariah is essential; and the regulation should consider this aspect along with
industry growth and consumer protection.
The Director General of the Insurance Commission of Jordan, His Excellency Dr. Bassel Hindhawi, during his
keynote address said that the growth in takaful should be supported by a good national regulatory framework aiming
at creation of a level-playing field for the players. The Islamic Financial Services Board (IFSB) and International
Association of Insurance Supervisors (IAIS) are working together on setting the standards, he added, while exhorting
that transparency, regulation and market conduct would establish a mechanism that would create the intended
harmonization. He also said that industry collaboration and international agreement would further develop takaful
and the wider Islamic financial services sector.
The other aspects that came up for discussion during the conference are the existing takaful models; new business
models on the anvil; and product innovation. The speakers reportedly hoped that greater co-operation and sharing
would help eliminate risks in the underwriting products for life and family takaful.
SOUND REGULATIONS FOR TAKAFUL MARKET
NEWS BRIEFS
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The contractors under the US Department of Energy
would not be reimbursed for defined benefit pension plans
associated with the new employees, it is reported. The
department announced that it will only reimburse the
contractors for costs associated with defined contribution
plans; and as long as they do not overshoot certain
benchmarks, at that.
The new policy would enable the department to improve
the predictability of contractor benefit costs and mitigate
the growth of its liabilities, it is reported. There has, however,
been some criticism of the stand and it is reported that 'it is
curious that a government agency should threaten the
retirement security of those working for its contractors while
federal employees are covered by a generous defined benefit
plan'.
CHANGE FROM DEFINED BENEFITTO DEFINED CONTRIBUTION
Travelers bound for Vietnam are to be offered health
insurance by the Vietnam Insurance Corporation (Bao Viet),
it is reported. It would cover foreign travelers on various
purposes - leisure; visiting friends; business; study; or
attending workshops. It would cover all travelers up to the
age 75 and would be valid for 180 days.
The amount of coverage would range between US $20,000
to US $100,000 under four different packages - all healthcare
expenses; emergency transport within the country;
repatriation and overseas emergency transport, and transport
of a corpse; and expenses for burial and cremation within
Vietnam.
The cover comes into effect when the insured completes
entrance formalities and would be effective until all the agreed
formalities are over, or up to 180 days of entrance into
Vietnam. In due course, Bao Viet hopes to extend the service
to cover trips to other Asian countries as well, reportedly.
Health Insurancefor Travellers in Vietnam
Bank for Agriculture and Agricultural Co-operatives
(BAAC) of Thailand is looking at offering insurance
coverage for crops against damages caused by drought or
flooding; in association with similar organizations in India
and China, reportedly. The pooling among the three
countries would help in reduction of the risks and costs;
eventually leading to strengthening the feasibility of the
programme.
It is reported that initially rice and corn would be
covered and the scheme would be operational by the end of
the year. In order to reduce the burden for the farmers, the
premium would be contributed also by the BAAC and the
government. On the one hand, the farmers have benefited
a great deal from the global rise in farm commodities
prices; on the other, however, there is a fall in production
owing to drought and flood damage. The proposed
insurance coverage would bring in a great amount of relief
against such natural havocs, it is reported.
Crop Insurancein Thailand
A decision with regard to the insurance rate increasefor Mississippi Gulf Coast residents living in high riskhouses is to be taken by the insurance commissioner. It isreported that The Mississippi Windstorm UnderwritingAssociation filed a request for huge rate hikes in the regionof 400 per cent for homeowners; 270 per cent for commercialbuildings; and around 60 per cent for mobile homes.
The Department of Insurance is scheduled to consultits actuaries before deciding whether the recommendationsare to be accepted in toto; or to lower the rates. The proposalfor the huge raise is in view of the devastation caused byHurricane Katrina in the year 2005, along the Gulf coast.The residents of six coastal counties might not be able toget wind coverage at normal homeowner's rates and assuch, a pool has been created.
While insurance companies in the state can sellinsurance policies, it has to be done under the supervisionof the state. The decision with regard to the rate is notgoing to be an easy one for the commissioner as he has todecide between granting an increase to maintain the windpool's stability; and ensuring there is a viable market thatdoes not adversely affect citizens statewide, reports say.
DECISION ON WIND POOL RATE INMISSISSIPPI
NEWS BRIEFS
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Mr.C.S.Rao, Chairman delivering the KLN Prasad Memorial Lectureat Administrative Staff College of India (ASCI), Hyderabad
on 21st April 2006. Also seen in the picture is Mr.M.Narasimham, Chairman, ASCI.
The Federation of Andhra Pradesh Chambers of Commerce and Industry(FAPCCI) conducted a one-day ‘Seminar on Detariffing in Insurance’ at Hyderabadon 25th March, 2006. Photograph shows Mr. C.S. Rao, Chairman, IRDA speakingat the seminar. Also seen (L to R) are Mr. C.V. Atchut Rao, President, FAPCCI;Mr. G.V. Rao, ex-Chairman, Oriental Insurance Co. Ltd.; Mr. Sohanlal Kadel,Co-Chairman - Banking, Insurance and Finance Committee, FAPCCI.
“ ”“For Lloyd's, what was a terrible tragedy
100 years ago somehow marked a watershedin our history too. It was in the aftermath of the
earthquake that our relationship with theUnited States was truly sealed. “
- Lloyd's chairman Lord Levene,talking about the San Fransisco earthquake
“India was being viewed by many multi-nationalinsurance companies as a vast market waiting to betapped. The global players were interested in this
market since there is vast untapped potential with amajor portion of household savings parked in the
banking sector.”
- C.S. Rao, Chairman, IRDA.
“Health insurance is more a socialresponsibility, where the individual should
get basic health care facilities. It is notnecessary to make health insurance
compulsory to make health care facility aright of every individual.”
- Dhananjay Date,MD, Swiss Re Services India
“Sound regulation is an integral part intakaful and the markets should be openand dynamic so as to induce innovationand competition for consumers' benefits”
- Dr Habib Al Mulla, Chairman of the DubaiFinancial Services Authority (DFSA).
“At present, the average size of protection that anindividual buys is around one and a half times his
annual salary, which is ridiculously low.”
- Shikha Sharma, CEO, ICICI Prudential Life Insurance.
“The distortions in the generalinsurance market relating to pricing of
fire and health insurance would getcorrected once detariffing is done.”
- C.S. Rao, Chairman, IRDA.
Events
RNI No: APBIL/2002/9589
15-20 May 2006Venue: PuneService Differentiation & Relationship ManagementBy NIA Pune
24-25 May 2006Venue: ShanghaiClaims ConferenceBy Asia Insurance Reviewe
22-27 May 2006Venue: PuneLinux Operations (Life)By NIA Pune
05-06 June 2006Venue: Singapore 1st Asian Conference on Branding in InsuranceBy Asia Insurance Review
05-07 June 2006Venue: PuneManagement of Motor Insurance (Own Damage)By NIA Pune
12-14 June 2006Venue: PuneEthical Values in Human CapitalBy NIA Pune
15-17 June 2006Venue: PuneHarnessing Rural Business PotentialBy NIA Pune
20-21 June 2006Venue: Hong KongCatastrophe ConferenceBy Asia Insurance Review
26-28 June 2006Venue: PuneActuarial Appreciation Program for Senior ExecutivesBy NIA Pune
29-30 June 2006 Venue: Singapore1st Asian Conference on Human Resource & TrainingDevelopment in InsuranceBy Asia Insurance Review