316 chapter - vii customer relationship management introduction in a globalized

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CHAPTER - VII

CUSTOMER RELATIONSHIP MANAGEMENT

INTRODUCTION

In a globalized insurance environment and with severe competition in

the insurance sector, an organization can survive only with its customer-

centric strategies. The organization should focus on Customer Relationship

Management (CRM) in order to be customer friendly, enhancement of

customer satisfaction and the resultant growth of the firm. A proper and timely

platform is required to achieve this. Traditionally, marketing has been seen

from the perspective of managing relationship with customer groups.

Relationship marketing, however, takes a much broader view of the business.

It emphasizes on a wider range of markets to provide the best value

proposition in terms of both the product and also the customer service1.

At present, the CRM is the latest idea of managing and propagating

insurance business more successfully. It is a tool that helps to design

insurance products which match with the customer expectations. It also helps

to build customer trust and develops loyalty of the customer. The main

strategy of CRM is to pay attention to customer needs, innovative marketing

channels, uniform quality outlets and identification of target market and also

customer groups.

The new generation companies claim to grow by customer services by

tuning up technology, training staff and tackling existing markets. Private

players are picking up market share from competitors2. With better prospects

offered in the technology sector, the capacities and capabilities of the life

insurance sector to retain and improve customer base is strengthened. The

1 Urmi Bhadra, ‘CRM–Success Navigator for Insurance – Special Focus on Indian Market’,The Journal of Insurance Institute of India, Mumbai, July–December, 2007, p.120.

2 Jagendra Kumar, ‘Success of Indian Insurance Brokers: A Bubble waiting to Burst’, TheJournal of Insurance Institute of India, Mumbai, January-June, 2007, p.35.

317

timely and efficient policy towards customer service makes this possible and

acceptable to the insurers.

The quality of customer relationship is often the differentiator. It is more

so for life insurance business because the insurers are in the business of

improving the quality of life of the customers. The understanding that a life

insurance business is essentially one of partnership in helping customers and

meets their lives, opportunities and adversities will go a long way in aligning

the functional arms in the business3.

For any organization, the main objective is of profit maximization. But

non-profit organizations are also paying more attention to efficient services

and also protecting the interests of the customers. The primary objective of an

insurance organization is to maintain clarity in transactions and provide full

protection to policyholders. The insurers should be utmost transparent at the

time of the sale of their products. They have to provide clear and complete

information about the products. The biggest beneficiary of the competition

among life insurers has been the customer. A wide range of products,

customer-focused service and professional advice have become the mantras

of the industry, with the customer forming the pivot of each company’s

strategy4.

CRM is a defensive marketing strategy that focuses on managing the

customer experience by better understanding their needs and buying

behaviour. It is a systematic way to strengthen the relationship between a

company and its customers and transforming acquaintances5. Given the

importance of CRM in business success, insurers many times are eager to

adopt the latest technology in different service applications which will provide

3 Rajesh Sud, “Customer Relationship – Your Most Important Asset”, IRDA Journal, April,2009, p.30.

4 Shikha Sharma, “Growing with the Customer!”, IRDA Journal, April, 2004, p.21.5 Roger J. Baran, Robert J. Galka and Daniel P. Strunk, ‘Customer Relationship

Management’, South-western Cengage Learning, New Delhi, 2008, p.32.

318

a competitive edge. But, the actual success lies in the proper and careful

adoption of the latest technology. Employees are crucial to the success of

CRM. Hence, they are to be trained effectively to handle changes. However,

change adoption is not a simple task.

CRM IMPLEMENTATION

CRM is a technology. Implementation of this technology includes

collection of valuable information of the customers through previous contacts,

surveys and queries. The information is collected through tele, e-mail, fax and

call centers. It is best fit for providing quality service towards policyholders.

Through the implementation of CRM, the insurer gets the advantages of

innovative development of product, better operational efficiency and

accelerated customer satisfaction.

The customers are becoming harder to convince and satisfy. They are

more demanding, price and service-conscious, less forgiving and are

approached easily by competitors with same or higher offers. This challenge

is not to develop satiated customers but to produce very much delighted, loyal

and committed customers.

The most popular definition of customer satisfaction/dissatisfaction is

that it is a comparison of customer expectations to perceptions regarding the

actual service encounter. Comparing customer expectations with their

perceptions is based on what marketers refer to as the expectancy model. If

customer perception meets expectations, the expectations are said to be

confirmed and the customer is satisfied. If perceptions and expectations are

not equal, then the expectation is said to be disconfirmed6.

CRM has proved to be an effective tool in the quest for better customer

relationships for the insurance companies. The customer generally imposes

6 Amutha, G. and Sakthivel Murugan, M., ‘Customer Satisfaction on Closed User GroupServices’, Southern Economist, June 1, 2011, p.8.

319

tremendous faith in the agent. The clarifications regarding the customer’s

questions should be answered in a correct and proactive manner by the

agent.

With customer attrition rates hitting the roof, the primary challenge for

CRM is to ensure customer satisfaction and retention. The key to customer

satisfaction is to understand the individual customer’s behaviour and predict

their needs and demands. Inspite of the best intentions of the organization,

customer might get dissatisfied with some aspect of his experience with the

organization. Levels of dissatisfaction can range from displeasure to anger7.

To ensure higher impetus on CRM initiatives, sales force automation is

of great help. All routine data entry tasks are automated or outsourced. Online

access to all required data and information helps sales people obtain current

information as and when they require. This results in integration of both front-

end and back-end data.

With intense competition and at the same time decreasing customer

loyalty in the insurance industry, the insurers have also to address not only

prospective and existing customers but also the lost ones as the distinct target

group for their CRM initiatives through carefully planned revival programmes.

Many insurers have obtained the benefits of CRM. They have retained

and pleased the customers with their newly designed products, gained

repeated purchases of the insurance products and increased profitability.

Insurance companies need to focus on customer driven policies to satisfy the

diversified needs of policyholders in the best possible manner. LIC and other

private insurance companies depend significantly on the technology for

carrying out the routine tasks like online payment, online claim settlements, e-

business and internet marketing.

7 Govinda Bhat, K., ‘Customer Relationship Management’, Himalaya Publishing House,Mumbai, 2009, pp.200-201.

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e-CRM is an online customized approach to interact with prospects and

existing customers. It helps to understand, estimate and manage customer

needs quickly. It reduces the costs of customer operations. But,

implementation of e-CRM needs suitable infrastructure requirements on the

web by the insurer.

As new insurers are entering into the market and are offering different

innovative products, they have to give more importance to CRM. The life

insurance agents also have to play an important role in building up the

relationship with the policyholders. Relationship management is a suitable

strategy for better taking care of the customers. CRM has got an integrated

approach which helps the manager, the agent and other officials to

understand the present status of clients, facilitate smooth and continuous flow

of information and timely care of the consumer. Relationship management is

the key factor for the success of an organization as it builds a base of loyal

customers.

INSURANCE EDUCATION

Consumers today have choices of both products and insurers and are

discovering insurance as a financial product satisfying much more than mere

requirement of a tax saving device. Advancement of technology, media

revolution, quality orientation and intense competition created a dire need of

educating the customers. During the post-liberalisation period, most of the

private players entered the insurance market. This resulted in creating

awareness about the significance of insurance to the under-privileged

sections of the society.

The Insurance Institute of India, Mumbai prepared good reading books

for insurance awareness of customers. The Institute has also played an

important role in conducting pre-recruitment examination for insurance

agents. Some of the other institutes and also universities have introduced

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insurance topics in their curriculum of graduate and post-graduate courses of

both regular and distance education programmes. The College of Insurance

has moved to a leadership position in insurance education at present. It is a

place for research, dissemination of information and leadership development

for the insurance industry. As insurance awareness in India is very poor, this

could be a potential area of activity for both the College of Insurance and also

the Associated Institutes.

Insurance education is a very important administrative and economic

function to any insurer. It is a tool for managing economic development of the

country. The orientation that insurance education today must seek to develop

is a keen understanding of insurance customers, the benefits they seek and

the aspirations they have of financial products and services, coupled with

skills of customer cultivation, customer service and long-term customer

retention.8 The insurance education ensures the strength, weaknesses,

opportunities and threats of various strategies and reduces the gap between

the insurance agent and the policyholder. The insurance literacy alone can

empower consumers to be better insurance shoppers, allowing them to obtain

insurance services at lower cost.

Further, insurance education provides the insured to understand the

different innovative products of the insurers and the associated risks involved

therein. The market efficiency, the transparency and the competitive practices

of the insurers are also made known to the customers through education. It

also helps to monitor insurance market regularly and advises the investors to

take decisions judiciously and efficiently. After liberalization of the insurance

sector, many new insurance players entered the market and put increased

emphasis on customer education, service and finding new and imaginative

ways of rendering the same.

8 Garg, S.C., ‘Insurance Education: Challenges and Opportunities’, The Journal ofInsurance Institute of India, Mumbai, July-December, 2006, p.9.

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The LIC has been spreading the awareness programme to rural areas

through village panchayats and village servants. The development officers are

also working aggressively for selling insurance products in rural areas. The

life insurance agents are also the real heroes of the insurance sales

programmes of these areas. The IRDA is in touch with the Indian Institutes of

Management and Institute of Chartered Accountant of India to have insurance

as a subject in their curriculum. Imparting training to sales force is not a one-

time activity. From time to time, their knowledge is to be upgraded. The

newcomers will get better results only through the right type of training

imparted to them by the insurers. The technology up-gradation training

becomes very important for the survival of agents in this era of competition.

The private players are also introducing innovative insurance products and

hence training is necessary and utmost important to agents.

As a result of the changes in family structures and changing attitudes

of consumers, customer service is faced with new challenges with every

passing day. Some customers want service to be delivered at all times. They

demand that service is to be delivered to their doorsteps instead of them

having to come to the service delivery points. Customers are quick to switch

loyalties when they get a better deal from a competitive service provider. Any

slip-up on the part of the service provider may cause customers to dump the

service provider and switch over to a new one9.

CUSTOMER SERVICE

Customer service is the main key of insurance business. It is an

attitude and a series of organized behaviour aimed at delivering measurable

satisfaction and delight to customers. The customer has to play an important

role in knowing his rights and obligations towards the purchase of insurance

9 Kaushik Mukerjee, ‘Customer Relationship Management – A Strategic Approach toMarketing’, PHI Learning Private Limited, New Delhi, 2009, p.7.

323

products. For this, the consumer has to get both pre and post-sale services

from the insurers.

Customer service is the essence and heart of insurance business.

Though it is not at all a new word in the business world, the new thing is the

way customers are now treated by the organization. So the importance of

serving customer is of utmost importance in the ever-increasing, ever-

changing and highly competitive business scenario. Many researchers have

proved that retaining a customer is four times cheaper than acquiring a few.

LIC had issued credit cards to the policyholders. The policyholders can

make payment of premium to the Corporation with the help of the credit card.

This practice was also taken up by some private insurers. Many insurance

companies are also making payments to policyholders through National

Electronic Fund Transfer (NEFT) and Electronic Clearing Service (ECS) to

ensure speed and safety of funds. Through the Key Performance Indicator

(KPI), an insurer can give necessary information to the insured immediately.

Automated modes like ECS or standing instructions through a credit card

ensure that the customer undertakes limited effort and decreases the risk of

lapsation for both the customer and the insurer. Use of mobile phones for

remittance of insurance premium is likely to be a reality soon10.

LIC opened satellite offices across the country to link up the branch

network with the Head Office. As a result, the Corporation took up the

expansion of improved customer service even to rural areas. Now all

customers can transfer insurance payments through any ATM terminal

anywhere in the country. The private players are also providing services

beyond their boundaries. Through call centers and touch points, the insurers

are serving the customers better. With the advent of the information

10 Ramachandran, T.R., ‘Tackling the Demon – Lapsation in Life Insurance’, IRDA Journal,September, 2011, p.32.

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technology, e-mail and mobiles have also resulted in faster and safer

customer services at a touch of the button.

The Government of India is taking a step enormously for giving unique

identification number to Indian citizens. LIC has agreed with the authority to

provide verification services wherever necessary for a certain fee of the

policyholders. It helps prevent insurance fraud by colluding with hospitals and

diagnostic centers. The IRDA is also planning to establish insurance fraud

prevention authority for reducing the problem of insurance fraud.

Another facility by the insurer to the policyholder is the establishment of

cheque boxes at various counters like malls, ATM centers, etc. The cheques

of the policyholders are collected through these centers and the same will be

deposited in the insurers’ accounts. The philosophy behind all these initiatives

is to ensure total satisfaction of the consumer.

Treating the Customer Fairly (TCF) is a new management initiative that

looks beyond mere customer satisfaction. It is a technique in which the gap

between the customer’s desire and what he gets from the insurer actually is

reduced. It helps to gain the confidence of the customer. Every customer will

be treated fairly by the insurer. It helps improved customer loyalty, increased

customer satisfaction and improved goodwill. TCF ensures maintenance of

satiated customers and results in the long-term sustainable growth of the

Indian life insurance industry.

The technology has also used for providing customer services right

from the proposal to the settling of a claim. The technology includes mobile,

internet and electronic transfer. This increased the geographical spread of the

business across the globe. Renewal follow-up services like timely reminders,

renewal notices and facility to renew policies are also initiated by the insurers

to build-up strong renewal mechanism.

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Customer Due Diligence (CDD) is another management technique

which helps the insurer to identify customer identity and verifying the

beneficial owner. The insurers should apply CDD measures for determining

the risk apatite depending upon the type of customer, business relationship or

transaction.

CLAIM ACTIVITY AND MANAGEMENT

The crux of every insurance activity is the elimination of risk and

substitution of certainty for uncertainty. It helps in substituting risks with the

costs of buying and maintaining insurance policies. Insurance gives the

insured a kind of peace of mind since he is assured of making up the loss in

the event of such uncertainties in life. Unless the insurer has the ability to

respond to claims, the whole purpose of insurance is defeated and becomes

meaningless.

A claim on the policy is a demand on the part of an insurer to fulfill a

promise committed to while writing the contract with the life assured. 11 The

fairness with which the claims are settled reflect the level of services the

company provides to its customers which contributes significantly to customer

satisfaction.

Careful management of claim settlement is of paramount importance to

the success of an insurer. Reluctant claims settlement brings with it public ill-

will which may take years to overcome. Often negotiation with the claims

department is the only direct contact that the insurance buyer has with the

insurer. A bad impression received on that contact may result in the loss of

business, court action, regulatory censure, or even suspension of the right to

carry on business. On the other hand, an overly liberal claim settlement policy

11 Bindu Krishnan, ‘Claims Management and Claims Settlements in Insurance’, The Journalof Insurance Institute of India, Mumbai, July-December, 2010. p.49.

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may ultimately result in higher rate levels and loss of business to competitors

charging lower premiums12.

Claim settlement practices in insurance have attracted special

legislative attention with passage of fair claim settlement laws in most states

of United States of America. These laws are enforced by State Insurance

Commissioners and represent standards by which insurance consumers can

judge the adequacy of claims handling by their insurers.

A claim management transition is required to move to a higher levels of

speed and correctness in claim settlements, with sensitivity to the realities on

the ground and customer distress at the time of loss. Claim time for the

insured is a time for emotional and financial distress.

Claims processing is of vital importance and it has to be handled with

utmost care for elimination of fraud. It is also a complex process which

depends on the nature and type of insurance. Fraud is one of the biggest

threats between an insurer and the insured. It occurs when one of the parties

gain undue benefit. As a part of claims process, an insurer has to identify the

fraudulent cases. An insurer also recognizes the agents of suspicion, the

types of losses and also predicts possible frauds. Effective fraud controlled

claim process is very important for both insured and insurer. It is necessary

for the insurers to reduce fraudulent claims to retain reputation.

Establishing a fraud prevention authority is an imminent need of the

Regulator and unless the insurable population is catered with right products in

the right way, it would not be possible to enlist the new customers or to retain

the existing customers.

There is a need to quickly put an end to the hit-and-miss trends in

insurance claims through a steady and progressive consumer education

12 Trieschmann, Hoyt and Sommer, ‘Risk Management and Insurance’, Thomson South-Western, a Division of Thomson Learning Inc., New Delhi, 2007, p.484.

327

about the ills of fraudulent tendencies. There is absolutely no doubt that

despite all the efforts taken, the average levels of understanding the

insurance contracts are still a way behind what is desirable. There is a role for

all the stakeholders in achieving higher success in this regard. 13

The policies should be in plain English in order to spread insurance

awareness amongst common public. Plain English is a style of communication

that focuses on putting across the content concisely and clearly. Only simple

words are used keeping the layman in mind. Life insurers change lower

premium for riders. But, they are not sold exclusively. They are to be attached

with the main insurance policies.

MATURITY AND DEATH CLAIMS

The claims are generally categorized into two classes, i.e., maturity

and death claims. The maturity claims have to be settled at the time of

maturity. The lumpsum amount paid at the maturity date includes the sum

assured and also an accrued amount of bonus. The insurer normally

dispatches advance intimations to the insured. The company is expected to

make payment on the maturity date. Post-dated cheques are normally sent to

the policyholders in advance. Maturity claim is payable under endowment

type of policies including money back policies. The life assured should be

alive on the date of maturity. The policy schedule provides for the payment of

the maturity claim to the life assured or the assignee. Settlement procedure in

a maturity claim is simple. After the receipt of the completed and stamped

discharge voucher from the person entitled to the policy money along with the

policy documents, claim amount will be paid by the insurer direct to the

account of the policyholder.

Death claims occur before the expiry of the term of the policy and on

the death of the insured. At the time of death claims, the nominee should

submit all the necessary documents to the insurer. Death claim is payable

13 Jawaharlal, U., “Undoing the Errant Environment”, IRDA Journal, May 2011, p.16.

328

under all policies. The death of the life assured must occur before the end of

the policy term. The premiums should have been paid upto the date of death

or for at least three years. This is a privilege offered by the insurer to the

claimant in appreciation of the long association of the life assured with the

insurer. The LIC is following this practice. The objective of this privilege is to

pay the full sum assured in certain cases, even if the premiums are not paid

up to the date of death14.

Under section 108 of the Indian Evidence Act, 1872, if it is proved that

the person has not been heard of for seven years by those who would have

naturally heard by him had he been alive, the presumption of law is that he is

dead. His heirs can apply to the appropriate civil court and get a court order

declaring that the life assured might be presumed to be dead. The date of the

court’s order is taken as the date of death and a claim is payable by the

insurer15.

In case of more than one person claim to the policy money, it is called

a rival claim. The insurer may advice the rivals to approach the court for

resolution of the rivalry. The claimants should move the court within 15 days.

The insurer has to wait till the court passes an order of resolution and also for

payment16.

The efficiency of the service rendered by the insurers to the customers

is mostly influenced by the way in which both the maturity and death claims

are being settled. Table 7.1 highlights information about the number of

policies on which the maturity claims are settled by the LIC of India during the

period 2000-01 to 2009-10. It is observed from the Table that during 2002-03,

the highest growth rate was recorded by the LIC. 82.64 lakh policies’ maturity

claims were settled during the period which accounted for a 16.31 per cent

growth rate. As regards the amount settled by LIC to policyholders, the year

14 Krishnaswamy, ‘A Text Book on Principles and Practice of Life Insurance’, Excel Books,New Delhi, 2009, p.204.

15 Gupta, P.K., ‘Insurance and Risk Management’, Himalaya Publishing House, Mumbai,2010, p.426.

16 Krishna Swamy, G. op.cit. p.201.

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2004-05 showed a highest annual growth i.e. 35.57 per cent. The Corporation

paid an amount of Rs.16,660 crores to the customers towards the settlement

of claims. During the ten year period, the settlement of maturity claims in

terms of amount was increased by over seven times. On the whole, it may be

mentioned that the performance of LIC with regard to maturity claim

settlement is quite satisfactory and as a result enhances the reputation of the

Corporation in the minds of the policyholders.

Table 7.1MATURITY CLAIMS SETTLEMENT BY LIC OF INDIA

DURING 2000-01 TO 2009-10

Year Number of Policies Amount(Rs. in crores)

2000-01 61,84,000 6,237.42

2001-02 71,05,000(14.89)

7,628.55(22.30)

2002-03 82,64,000(16.31)

9,757.50(27.91)

2003-04 92,45,000(11.87)

12,289.31(25.95)

2004-05 98,73,000(6.79)

16,660.96(35.57)

2005-06 1,09,83,000(11.24)

20,355.15(22.17)

2006-07 1,15,63,000(5.28)

24,743.42(21.56)

2007-08 1,23,35,187(6.68)

29,107.18(17.64)

2008-09 1,32,45,621(7.38)

38,023.49(30.63)

2009-10 1,41,62,716(6.92)

45,039.15(18.45)

Note: Figures in percentages are the annual growth percentagesSource: Compiled from the Annual Reports of IRDA.

330

Statistical Analysis:

i. Mean and Standard Deviation

Particulars Number of PoliciesSettled

Amount(Rs. in crores)

Number of YearsMeanStandard Deviation

1010296052.42632929.87

1020984.2113189.47

The above table gives information on the average number of maturity

claims settled by LIC. The number of policies settled, on an average, is stood

at 10296052.4 per year and the amount settled is Rs 20984.21 crores. The

standard deviation of maturity claims settlement policies are 2632929.87 and

the amount is Rs 13189.47 crores during 2001-10.

Figure A: LIC Maturity Claims Scatter Plotii. Correlation

1 .964**. .000

10 10.964** 1.000 .

10 10

Pearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)N

Number of Policies

Amount (Rs in Crores)

Number ofPolicies

Amount (Rsin Crores)

Correlation is significant at the 0.01 level (2-tailed).**.

Number of Policies

1600000014000000120000001000000080000006000000

Amount(Rs in Crores)

50000

40000

30000

20000

10000

0

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The above table analyses the correlation coefficient for maturity claims

settlement and also the amount settled. It is 0.964. Since 0.964 is relatively

close to 1, this indicates that the maturity claims settlement and the related

amount are positively correlated. The significance level is small i.e., 0.000. It

is less than 0.01. Hence, the correlation is significant at 1% level of

significance and the two variables are linearly related.

iii. Regression Coefficients Analysis

-28722.1 5008.264 -5.735 .0004.828E-03 .000 .964 10.213 .000

(Constant)Number of Policies

Model1

B Std. Error

UnstandardizedCoefficients

Beta

StandardizedCoefficients

t Sig.

The linear trend forecasting equation is

Amount (Rs. in Crores) = -28722.10 + 0.0048* Number of Policies

The regression coefficients are interpreted as follows:

The Y intercept b0 = -28722.10 is the fitted trend value reflecting the

predicted mean of maturity claims settlement amount (Rs in crores) of

LIC during 2001-2010.

The slope b1 = 0.0048 indicates that the maturity claims settlement

amount (Rs in crores) is predicted to increase by an average of 0.0048

crores of rupees every year.

The above table displays R, R squared, adjusted R squared, and the

standard error. R, the multiple correlation coefficient, is the correlation

between the observed and predicted values of the dependent variable (Rs. in

crores). Larger value of R (0.929) indicates stronger relationships. R squared

.964 a .929 .920 3733.867Model1

R R SquareAdjustedR Square

Std. Error ofthe Estimate

Predictors: (Constant), Number of Policiesa.

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(0.929) is the proportion of variation in the dependent variable (amount, Rs. in

crores) explained by the independent variable (Number of Policies) in the

regression model.

Figure B: LIC Maturity Claims RegressionThe above Regression Plot shows that the LIC is fit to the linear

mathematical model since the observed figures are close to the linear trend

values. The significance value is less than 0.05 and ‘R’ squared value is also

close 1. In order to meet the linear mathematical line requirement, LIC, on an

average, has to increase the amount of maturity claim per policy of Rs. 0.0048

crore every year.

Table 7.2 refers to data on the growth rate of death claims settled by

LIC of India during 2000-01 to 2009-10. It shows that the settlement of death

claims by LIC is 4.35 lakh policies in 2000-01. It is increased to 7.02 lakh

policies in 2009-10. A negative growth rate was registered in 2003-04 which

accounted for -11.33 per cent. But, the sum assured reported to be

Rs.2,564.40 crores with an annual growth rate of 15 per cent. The amount of

death claims settled by LIC has been increasing year by year during the ten-

year period. There is about five-fold increase in the claim settlement amount.

The settlement of death claims by the LIC showed a positive sign to the

customers to repose confidence on the Corporation.

Number of Policies

1600000014000000120000001000000080000006000000

Maturity ClaimsSettlement Amount(Rs in Crores)

50000

40000

30000

20000

10000

0

Observed

Linear

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Table 7.2

DEATH CLAIMS SETTLEMENT BY LIC OF INDIADURING 2000-01 TO 2009-10

Year Number of PoliciesSettled

Amount(Rs.in crores)

2000-01 4,35,000 1,637.70

2001-02 4,49,000(3.22)

1,909.32(16.59)

2002-03 5,03,000(12.03)

2,229.94(16.79)

2003-04 4,46,000(-11.33)

2,564.40(15.00)

2004-05 4,80,000(7.62)

2,946.24(14.89)

2005-06 5,22,000(8.75)

3,303.19(12.12)

2006-07 5,27,000(0.96)

4,445.04(34.57)

2007-08 5,40,583(2.58)

5,857.72(31.78)

2008-09 6,77,374(25.30)

6,629.43(13.17)

2009-10 7,02,165(3.66)

8,076.31(21.82)

Note: Figures in percentages are the annual growth percentagesSource: Compiled from the Annual Reports of IRDA.

Statistical Analysis:


Particulars Number ofPolicies Settled

Amount(Rs. in crores)

Number of YearsMeanStandard Deviation

10528212.2092726.552

103959.93

2208.689

The above table presents information on the average number of death

claims settlement by LIC. The average number of policies settled is

528212.20 and the average amount of settlement is Rs 3959.93 crores. The

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standard deviation of death claims settlement policies is 92726.55 and the

amount is Rs.2208.69 crores during the study period.

Figure A: LIC Death Claims Scatter Plot

ii. Correlation

The above table gives an analysis on the correlation coefficient for

death claims settlement and also the amount settled. It is 0.937. Since 0.937

is relatively close to 1, this indicates that the death claims settlement and the

related amount are positively correlated. The significance level is small i.e.,

0.000. It is less than 0.01. Then the correlation is significant at 1% level of

significance and the two variables are linearly related.

1 .937**. .000

10 10.937 ** 1.000 .

10 10

Particulars


Number of PoliciesSettled

Amount (Rs in crores)

Number ofPoliciesSettled

Amount(Rs. incrores)


Number of Policies Settled

800000

700000

600000

500000

400000

Amount(Rs. incrores)

9000

8000

7000

6000

5000

4000

3000

20001000

335

iii. Regression Coefficients Analysis:

-7830.554 1573.934 -4.975 .001

2.232E-02 .003 .937 7.594 .000

(Constant)Number ofPolicies Settled

Model1

B Std. Error


Beta


t Sig.


Amount ( Rs in Crores) = -7830.55 + 0.0223* Number of Policies



predicted mean of death claims settlement amount (Rs. in crores) of

LIC during 2001-2010.

The slope b1 = 0.0223 indicates that the death claims settlement

amount (Rs in crores) are predicted to increase by an average of

0.02243 crores of rupees per year.

The above table displays R, R squared, adjusted R squared, and the

standard error. R, the multiple correlation coefficients, is the correlation

between the observed and predicted values of the dependent variable

(amount, Rs. in crores). Larger value of R (0.878) indicates stronger

relationships. R squared (0.878) is the proportion of variation in the dependent

variable (amount, Rs in crores) explained by the independent variable

(Number of Policies) in the regression model.

.937

a .878

.863

817.641

Model1

R RSquare

AdjustedRSquare

Std. ErroroftheEstimate

Predictors: (Constant), Number of PoliciesSettled

a.

336

Figure B: LIC Death Claims Regression Plot

The above Regression Plot shows that the LIC is fit to the linear

mathematical model since the observed figures are not away from the linear

trend values. The significance value is less than 0.05 and ‘R’ squared value is

also close 1. In order to reach the linear mathematical line, on an average,

LIC has to increase death claims per policy of Rs. 0.02243 crores every year

which ensures good and consistent progression in business.

One of the major problems of claim activity and management is the

identity of the subject matter and also claims. Paying a wrong claim to a

ingenuine claimant is an unjustified service to the honest policyholders as

premiums of all policyholders have accumulated to the fund where from the

wrong claims are paid.

CLAIM REPUDIATION

Insurance is a business of collecting premiums and settling claims. In

claim process, an insurer has to give support to all valid claims. At the time of

selling an insurance policy, an insurer has to take correct information relating

to the proposer’s health and financial conditions. Based on the information,

the insurers have to decide the particular category of risk, the coverage

amount and the premium accordingly. At the time of claim stage, if they find

suppressed information, it may lead to rejection of the claim. The insurer

Number of Policies Settled

800000700000600000500000400000

Amount(Rs in crores)

9000

8000

7000

6000

5000

4000

3000

2000

1000

Observed

Linear

337

should list out the genuine claims and settle the same immediately. Further,

an insurer has also to publicize the reasons for repudiation of claims.

A proper and quick processing of a genuine claim goes a long way in

building the reputation of the insurer while an indiscriminate repudiation is

bound to affect its goodwill. A reduction in fraud levels results in decreasing

the false claim payments. It is important that insurance selling process is

transparent and educative for the customers.17 But, the policy may be invalid

due to the misrepresentation or suppression of material facts by the insured at

the time of submitting claims. The repudiation of a claim has to be considered

by an insurer on the merits of the lapses of information given in the proposal

form.

The larger the number of products and variants, the more confused is

the customer. Any misunderstanding can result in disappointment and

consequent rejection of a claim. Buying insurance products is complicated

and mostly confusing to the customer. But, it is the responsibility of the

customer to understand the provisions of his insurance policy.

The main responsibility of the claims department is to distinguish

between the valid and invalid claims fairly. Section 45 and 47 of the Insurance

Act, 1938 enable the insurer to repudiate the claims as and when necessary.

Sometimes, the claims may be repudiated on other reasons. If any of the

clause or condition laid down in the policy document is contravened, then the

insurer is compelled to repudiate the claim or pay the stipulated amount as

per the relevant clause or condition18.

It is a sad state of affairs that the claims of the insured persons are

deliberately and intentionally repudiated under the pretext of nondisclosure of

pre-existing diseases. It is necessary that more care is taken at various levels

17 Alpesh Patel, “Core Value Proposition of Insurance – Claims Settlement”, IRDA Journal,June, 2010, pp.15-18.

18 Mishra, K.C. and Kumar, C.S., ‘Life Insurance: Principles and Practice’ Cengage Learning,India Pvt. Ltd., Delhi, 2009, p176.

338

while a claim is repudiated. In order to achieve this, it is desirable to put in

place various layers of operational hierarchy before repudiating a claim.

There is always a provision in the insurance organization to review the

repudiated claims. The review may result in admitting the claims repudiated

earlier. If the review also confirms the repudiation, the claimant has to be

advised that it was not found possible to make the payment of the claim. The

claimant can approach the grievance redressal machinery first, before he

goes to the court of law19.

The approach of the insurers in the matter of repudiation of claims

should be one of extreme care and caution. It should not be dealt within a

mechanical and routine manner. While legally, insurance companies are

absolutely right in repudiating claims based on documentary evidence,

morally they owe a duty to the customer’s family. Ability to keep repudiation to

the absolute minimum is a key to business success in the changing insurance

environment. On the whole, it is understood that the total number of claims

repudiated or pending is less than 5 per cent in LIC and for the private sector

it is over 15 per cent.

BENEFITS PAID

The benefits payable to the customers by the life insurers at different

points of time during the policy period include the payment of survival and

annuity benefits. It includes surrender amounts also. The profitability, the trust

and the quality of customer service rendered by an insurer are clearly

influenced by the benefits payable to the customers.

Survival benefits are payable under money back policies. The life

assured should be alive on the date on which the survival benefit is payable. If

a policy is assigned, the assignee can receive the survival benefit though the

life assured is alive.

19 Krishnaswamy, G.op.cit. p.202.

339

Annuity payments are also made by the insured depending on the type

of annuity and the mode of payment of annuity selected by the annuitant.

Depending upon the structure of insurance product, the benefit payment

arises.

The major point in surrender of a policy is that the policy is cancelled

before the happening of an insured event. The accident and disability benefits

as per the conditions mentioned in the policies are also to be paid by the

insurers to the customer. Further, the critical illness benefit is also paid to the

customer as a lump sum amount on the diagnosis of specified diseases.

Table 7.3 reveals data on the benefits paid to the policyholders as a

percentage to the premium underwritten by the life insurers during 2000-01 to

2009-10. It is observed from the Table that the private life insurance industry

has registered an increase in the benefits paid during the years 2007-08 to

2009-10 and the ratio between benefits paid and the premium underwritten

has also risen from a small 9.34 per cent to 21.00 per cent. LIC also shows an

increase in the ratio from 33.38 per cent to 42.54 per cent during the period.

On the whole, there is a consistent increase in this ratio by the LIC whereas

the ratio of the private life insurance industry is oscillating all the while and it is

the highest in 2009-10. As there is a significant increase in the premiums

underwritten by the private insurers, automatically the benefits paid have also

increased. It is found that the outstanding cases of the previous years are

taken care of by the private insurers in 2009-10 and the total amount of

benefits paid has remarkably increased. It is relevant here to suggest that the

individual claims of benefits by the insured are to be settled immediately

within the same financial year by the private insurers for avoiding any

untoward conclusion about the ratio of benefits paid to premium underwritten

by them. Further, a huge rise in the early withdrawals during 2009-10 is also

caused by the frustrated surrenders of policyholders due to the impact of

financial and equity meltdown on our economy.

340

Table 7.3BENEFITS PAID AS A PERCENTAGE TO THE PREMIUM

UNDERWRITTEN BY LIFE INSURERS DURING 2001-01 TO 2009-10(Rs. in crores)

Year

LIC Private Sector Total

Benefits

paid

Premium

Underwritten

Ratio

(%)Benefits

PaidPremium

Underwritten

Ratio

(%)Benefits

paidPremium

Underwritten

Ratio

(%)

2000-01 14036.84 34892.02 40.23 -- 6.45 -- 14036.84 34898.47 40.22

2001-02 17476.64 49821.91 35.08 2.88 272.55 1.06 17479.52 50094.46 34.89

2002-3 20530.29 54628.49 37.58 14.42 1119.06 1.29 20544.71 55747.55 36.85

2003-04 23930.34 63533.43 37.67 81.78 3120.33 2.62 24012.12 66653.76 36.03

2004-05 28455.71 75127.29 37.88 244.86 7727.51 3.17 28700.57 82854.80 34.64

2005-06 33956.80 90792.22 37.40 1306.65 15083.54 8.66 35263.45 105875.76 33.31

2006-07 53298.41 127822.84 41.70 2470.27 28242.48 8.75 55768.68 156065.32 35.73

2007-08 56567.78 149789.99 37.76 5212.24 51561.42 10.11 61780.02 201351.41 30.68

2008-09 52502.00 157288.04 33.38 6025.00 64497.43 9.34 58527.00 221785.47 26.39

2009-10 79162.00 186077.31 42.54 16671.00 79373.06 21.00 95833.00 265450.37 36.10

Note: Benefits include surrender and withdrawal amountsSource: Compiled from the Annual Reports of IRDA

Statistical Analysis

A. LIC


Particulars LIC Benefits Paid LIC PremiumUnderwritten

No. of YearsMean

Standard Deviation

1037991.6821316.27

1098977.3552474.99

The above table provides summary statistics which include measures

of central tendency. From the above table, it is understood that the average

benefits paid is Rs 37991.68 crores and the premium underwritten is Rs

341

98977.35 crores. The standard deviation of the benefits paid is Rs 21316.27

crores and the premium underwritten is Rs 52474.99 crores during 2001-

2010.

Scattor Plot

Premium Underwritten (Rs in Crores)

200000180000

160000140000

120000100000

8000060000

4000020000

Benef

its pai

d (Rs

in Cro

res)

80000

70000

60000

50000

40000

30000

20000

10000

Figure A: LIC Scatter Plot

ii. Correlation

1 .983**. .000

10 10.983** 1.000 .

10 10


Benefits paid

LIC Premium Underwritten

Benefits paidLIC PremiumUnderwritten


The Table displays that the correlation coefficient for LIC premium

underwritten and the benefits paid are 0.983. Since 0.983 is relatively close to

1, this indicates that LIC premium underwritten and benefits paid are

positively correlated. The significance level is small 0.000 which is less than

0.01 and then the correlation is significant at 1% level of significance and the

two variables are linearly related.

342

iii. Regression Analysis

Coefficientsa

-1524.339 2935.912 -.519 .618

.399 .026 .983 15.066 .000

(Constant)LIC PremiumUnderwritten

Model1

B Std. Error


Beta


t Sig.

Dependent Variable: Benefits paida.

.983a .966 .962 4171.66967Model1

R R Square Adjusted R SquareStd. Error ofthe Estimate

Predictors: (Constant), LIC Premium Underwrittena.


Benefits Paid = -1524.34 + 0.399 * Premium Underwritten



predicted mean benefits paid (Rs in Crores) at LIC during 2001-2010.

The slope b1 = 0.399 indicates that benefits paid is predicted to

increase by an average of 0.399 Crores of rupees per year.

The table displays R, R squared, adjusted R squared, and the standard

error. R, the multiple correlation coefficients, is the correlation between the

observed and predicted values of the dependent variable (benefits paid).

Larger value of R (0.966) indicates stronger relationships. R squared (0.966)

is the proportion of variation in the dependent variable (benefits paid)

explained by the independent variable (Premium underwritten) in the

regression model.

343

Figure B: LIC Regression PlotB. Private Sector


Particulars LIC BenefitsPaid

LIC PremiumUnderwritten

No. of YearsMean

Standard Deviation

93558.795423.12

1025100.3829653.96

From the above table, it is clear that the average benefits paid by the

Private Sector are Rs 3558.79 crores and the premium underwritten is Rs

25100.38 crores. The standard deviation of the benefits paid is Rs 5423.12

crores and the premium underwritten is Rs 29653.96 crores during 2001-10.

Scatter Plot


100000800006000040000200000-20000

Ben

efits

pai

d (R

s in

Cro

res)

20000

15000

10000

5000

0

-5000

-10000

Figure C: Private Sector Scatter Plot

Premium Underwritten (Rs inCrores)

200000

18000016000

0

14000012000

0

1000008000

0

600004000

0

20000

Benifits Paid( Rs in crores)

80000

70000

60000

50000

40000

30000

2000010000

Observed

Linear

344

ii. Correlation

The Table displays that the correlation coefficient for private sector

premium underwritten and benefits paid are 0.905. Since 0.905 is relatively

close to 1, this indicates that private sector premium underwritten and benefits

paid are positively correlated. The significance level is small (000) which is

less than 0.01 and then the correlation is significant at 1% level of significance

and the two variables are linearly related.

iii. Regression Analysis

Coefficientsa

-998.642 1154.512 -.865 .416

.163 .029 .905 5.625 .001

(Constant)Private SectorPremium Underwritten

Model1

B Std. Error


Beta


t Sig.

Dependent Variable: Benefits paida.

.905a .819 .793 2467.50552Model1

R R SquareAdjustedR Square

Std. Error ofthe Estimate

Predictors: (Constant), Private Sector PremiumUnderwritten

a.

Correlations

1 .905 **. .0019 9

.905 ** 1

.001 .9 10

Particulars


Benefits paid

Private SectorPremium Underwritten

Benefits paid Private SectorPremium

Underwritten


345

The linear trend regression equation isBenefits Paid = -998.64 + 0.163* Premium Underwritten

The regression coefficients are interpreted as follows: The Y intercept b0 = -998.64 is the fitted trend value reflecting the

predicted mean benefits paid (Rs in crores) of Private Sector during

2001-2010.

The slope b1 = 0.163 indicates that benefits paid are predicted to

increase by an average of 0.163 crores of rupees per year.

The table displays R, R squared, adjusted R squared, and the standard

error. R, the multiple correlation coefficients, is the correlation between the

observed and predicted values of the dependent variable (benefits paid).

Larger value of R (0.819) indicates stronger relationships. R squared (0.819)

is the proportion of variation in the dependent variable (benefits paid)

explained by the independent variable (Premium underwritten) in the

regression model.

Regression Plot


100000800006000040000200000-20000

Bene

fits Pa

id (R

s in C

rores

)

20000

15000

10000

5000

0

-5000

-10000

Observed

Linear

Figure D: Private Sector Regression Plot

The above Regression Plots show that both LIC and Private Sector

insurance companies are fitted to linear mathematical model and the

observed figures are close to the linear trend values. As the insurers’

significance value is less than 0.05 and the ‘R’ squared value is close to 1, in

346

order to reach the linear mathematical line, LIC and Private Sector have to

increase, on an average, Rs.0.399 crores and 0.163 crores the benefits paid

per year in future for stable progression in business.

COMPLAINT MANAGEMENT

One of the major ethical concerns faced by the insurance industry

today is that of misconduct. It gives rise to a plethora of complaints which not

only cause monetary loss to an insurer but also result in the loss of trust,

reputation and brand image.20 Personal interactions and home visits are

considered to be customer friendly in some parts of the country. The

complainants not only want quick resolution but also satisfactory results and

therefore, customer voice is given importance in the process resolution. No

error attitude and complaint management leads to higher customer

satisfaction and patronage.

Establishment of a Grievance Redressal Cell by IRDA is a right

initiative by the Regulator towards the protection of consumer rights. This Cell

plays a facilitative and suggestive role by taking up complaints with the

respective insurers. An effective complaint management system enhances

customer satisfaction by creating a customer-focused environment that

receives and attends to complaints and is open to feed-back. Such a system

helps the organization to improve its services towards customers21. IRDA has

also implemented an online Integrated Grievance Management System

(IGMS) which provides a way for policyholders to register their complaints

with the insurers. The complaints flow to the Regulator’s repository and

updation and status of the complaints are also clearly shown in the

Regulator’s system.

20 Shriram Patel, “Supervision and Monitoring – The Way Forward”, IRDA Journal, August,2007, p.4.

21 Yegnapriya Bharat, ‘Grievance Management... and Beyond – Top Priority for Insurers’,IRDA Journal, October, 2011, p.28.

347

Table 7.4 gives information on the market share of complaints received

by the life insurers during 2003-04 to 2009-10. It shows that the LIC’s market

share has decreased significantly from 91.33 per cent in 2003-04 to 27.24 per

cent in 2009-10. But, the market share of the private insurers has increased

from 8.67 per cent to 72.76 per cent during the period. It is found from the

figures that the private players are taking undue time for redressing

complaints and as such many complaints are pending with them for a longer

period. The complaint redressal machinery is not working positively due to the

paucity and also inefficiency of the staff involved in the process of complaint

management in private sector units. But, a public sector LIC, has got

experienced and well-exposed staff to attend complaints immediately and as

such the complaints are redressed properly.

Table 7.4

MARKET SHARE OF LIFE INSURERS IN THE TOTAL COMPLAINTSRECEIVED DURING 2003-04 TO 2009-10

(Number)

Year LIC Private Sector Total

2003-04 474(91.33)

45(8.67)

519(100.00)

2004-05 1202(83.88)

231(16.12)

1433(100.00)

2005-06 1843(73.25)

673(26.75)

2516(100.00)

2006-07 1730(65.53)

910(34.47)

2640(100.00)

2007-08 651(31.65)

1406(68.35)

2057(100.00)

2008-09 1166(41.48)

1645(58.52)

2811(100.00)

2009-10 792(27.24)

2115(72.76)

2907(100.00)

Note: Figures in brackets indicate the Market Share as a percentage to total.The number of complaints received include complaints at the starting ofthe year and also the complaints reported during the year

Source: Compiled from the Annual Reports of IRDA

348

Table 7.5 gives information on the percentage ratio of complaints

disposed to the total complaints received by life insurers during the years

2003-04 to 2009-10. The number of complaints disposed by the LIC and

private sector units is one of the important activities which stimulates and

upgrades the reputation of the insurers in the insurance market. The claim

settlement ratio speaks about operational efficiency and credibility of the

companies. It signifies holding of trust, confidence and accountability to the

policyholders by the insurers. It also specifies the extent of the fulfillment of

the objective of a credible risk management. It is clear from the Table that the

percentage ratio of complaints disposed to total complaints received by both

LIC and private sector units is 81.06 and 88.42 respectively. This helps

develop faith and trust in the minds of the policyholders of different insurance

companies.

Table 7.5

COMPLAINTS DISPOSED AS A PERCENTAGE TO TOTAL COMPLAINTSRECEIVED BY LIFE INSURERS DURING 2003-04 TO 2009-10

(Number)

Year

LIC Private Sector

Received ComplaintsDisposed

Ratio(%) Received Complaints

DisposedRatio(%)

2003-04 474 39 8.23 45 26 57.78

2004-05 1202 210 17.47 231 98 42.42

2005-06 1843 467 25.34 673 270 40.12

2006-07 1730 197 11.39 910 102 11.21

2007-08 651 80 12.29 1406 1100 78.24

2008-09 1166 980 84.05 1645 1373 83.47

2009-10 792 642 81.06 2115 1870 88.42


349

Table 7.6 refers to the data on the percentage ratio of complaints

outstanding to total number of complaints received during the years 2003-04

to 2009-10 by the life insurers. The highest percentage ratio of complaints

outstanding to total complaints was registered by both LIC and private sector

units in 2006-07. Most of these complaints relate to unit-linked products of

different insurers. Later, these complaints are redressed by the insurers in the

subsequent years. On the whole, it is observed from the Table that the

percentage ratio of complaints outstanding has gone down from 91.77 per

cent in 2003-04 to 18.94 per cent in 2009-10 with regard to LIC and 42.22 per

cent to 11.58 per cent with regard to private sector. This shows clearly that

there is a gradual improvement in the performance of the grievance redressal

machinery of both the sectors as the percentage ratio of outstanding claims

has been reduced.

Table 7.6

COMPLAINTS OUTSTANDING AS A PERCENTAGE TO TOTALCOMPLAINTS RECEIVED BY LIFE INSURERS DURING 2003-04 TO 2009-10

(Number)

Year

LIC Private Sector

ComplaintsReceived

ComplaintsOutstanding

Ratio(%)

ComplaintsReceived

ComplaintsOutstanding

Ratio(%)

2003-04 474 435 91.77 45 19 42.22

2004-05 1202 992 82.53 231 133 57.58

2005-06 1843 1376 74.66 673 403 59.88

2006-07 1730 1533 88.61 910 808 88.79

2007-08 651 571 87.71 1406 306 21.76

2008-09 1166 186 15.95 1645 272 16.53

2009-10 792 150 18.94 2115 245 11.58


350

INSURANCE OMBUDSMAN

Ombudsman is an independent regulatory mechanism established

solely for the redressal of customer grievances. It is a Swedish word meaning

thereby a ‘legal representative’. It was started in 1809 and adopted in many

countries. This concept was first introduced in the banking sector with a

notification by the RBI. Before IRDA’s regulations in 2002, ombudsman

scheme was also introduced in the insurance sector through the notification of

‘Redressal of Public Grievance Rules, 1998’ under Section 114 of the

Insurance Act, 1938. An institution of Ombudsman was set up for the first time

by the Government in consultation with the IRA for settling complaints and

grievances of the insured.

The main role of this institution is to protect the interest of the

policyholders to generate good faith and confidence in the minds of

consumers and insurers. Ombudsman is appointed for a period of 3 years or

attains the age of 65 years, whichever is earlier. There is no re-appointment.

12 ombudsmen were appointed by Governing Body for a period of three

years22. These include Bhopal, Bhubaneswar, Cochin, Guwahati, Chandigarh,

New Delhi, Chennai, Kolkata, Ahmedabad, Lucknow, Mumbai and

Hyderabad.

Ombudsman is empowered to receive complaints from any person who

has any grievance against the insurer. He is a centre for redressing

complaints on large scale. Generally, the complaints include repudiation of

claims, dispute regarding the amount of premium paid, dispute on the legality

of the policy, delay in the settlement of claims and the non-issue of any

document after the receipt of the premium.

Table 7.7 indicates the percentage of complaints disposed to total

number of complaints received by Insurance Ombudsmen during the years

22 Sahoo, S.C. and Das, S.C., ‘Insurance Management’, Himalaya Publishing House, Mumbai,2009, pp.225-226.

351

2000-01 to 2009-10. It is observed from the Table that during 2007-08, the

percentage of complaints disposed to the total number of complaints received

is the highest. The disposal percentage has also increased from 74.32 per

cent in 2000-01 to 90.68 per cent in 2009-10. This shows that the

performance of Insurance Ombudsmen is proved gradually improving despite

a significant increase in the number of complaints received during the study

period.

Table 7.7

DISPOSAL OF COMPLAINTS BY OMBUDSMENDURING 2000-01 TO 2009-10

YearNumber of

ComplaintsReceived

Number ofComplaints Disposed

Percentage ofComplaints Disposed

to Total

2000-01 2,839 2,110 74.32

2001-02 1,967 1,506 76.56

2002-03 3403 1,917 56.33

2003-04 3,968 3,289 82.89

2004-05 6246 5020 80.37

2005-06 5526 4925 89.12

2006-07 6,021 5419 90.00

2007-08 6,168 5778 93.68

2008-09 6,143 5586 90.93

2009-10 9,524 8636 90.68


352

PROTECTION OF POLICYHOLDERS’ INTERESTS

Rendering efficient services and protecting the interests of the

customer have been logging the limelight world over. There has been an

increasing emphasis on being fair to the customer, irrespective of the type of

business that one pursues.

Regulation of insurance has a beneficial effect on the institution by

maintaining public confidence, securing desirable uniformity and preventing

destructive practices arising from competition within the industry. IRDA

(Protection of Policyholders’ Interests) Regulations, 2002 exclusively deals

with the matters to be stated in a life insurance policy and includes other

important items for protecting the interests of the policyholders. When a new

policy is issued, insurers must advise the insured to read it in order to make

sure that the cover granted conforms to his or her wishes. It is also necessary

to pay attention to endorsements. In some cases, they should override the

more general provisions in the policy itself.

The protection of policyholder regulations have played a very

significant role in protecting the interests and responsive to policyholders’

needs. It has helped in bringing transparency in transactions between insurers

and insured in the sales process, documentation, service levels and grievance

redressal.

A life insurance policy shall clearly state the name of plan, basis of

participation, benefits payable, details of riders, date of commencement of

risk, premiums payable, age at entry, provisions for nomination, assignment,

loans and surrender and any other special cause relating to the policy.

In the process of sale, the insurer or an agent or an intermediary shall

act according to the code of conduct prescribed by the Regulatory Authority,

the Life Insurance Council and also the recognized professional bodies or

associations of agents or intermediaries.

353

A life insurance company, upon receiving a claim, shall process the

claim without delay. Any queries or requirement of additional documents shall

be raised all at once and not in a piece-meal manner within a period of 15

days of the receipt of the claim.

A claim under a life policy shall be paid or disputed giving all the

relevant reasons, within 30 days from the date of receipt of all relevant papers

and clarifications required.

When there is a delay on the part of the insurer in processing a claim,

the insurer shall pay interest on the claim amount at a rate which is 2 per cent

above the bank rate.

Any breach of obligations on an insurer or insurance agent or

insurance intermediary may enable the Regulator to initiate action against

each or all of them jointly or severally.

The IRDA reviews the functioning of the insurance company, from time

to time, through inspections, meetings with the chief executives and chief

finance officers, the appointed actuaries and other senior officials, to form a

view of compliance and how risk issues are being readdressed by the

insurers.

316 chapter - vii customer relationship management introduction in a globalized

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