Repudiation rates in Life insurances

About 1.5 decades ago, when I used to read every magazine of Outlook money and do in depth research of the topics of personal finance, I came across 'Repudiation rate' for Life insurances.

The repudiation rate in insurance is the percentage of claims that an insurance company denies out of the total number of claims filed during a specific period. These denials can occur for various reasons, such as claims being filed after the policy has lapsed, improper paperwork, policy exclusions, or the suspicion of fraud.

For some 'only' online life insurance companies these rates to be about 40-50% and were untrustworthy from an insurance point of view. Why were these having such high repudiation rates compared to 3-5% for other insurances? Because they were the ones who used to run gimmick ads of dirt cheap insurance and then when the claim time came, they used to give some silly reason to reject the claim (that too, when the person insured is no longer alive).

I used to get these repudiation rates from the Insurance regulator -  IRDAI (Insurance Regulatory Development Authority of India) in its annual report.

This month, I was thinking of getting a term insurance and wanted to check the repudiation rate from the last year's annual report.

But, alas, they have stopped giving the individual companies repudiation rates and are only giving a category wise repudiation rate. Rate for Public companies and for private companies.

This is severely allowing the bad players to hide their bad work and not allowing the customers to know and choose wisely.

How to choose a life insurance?

In India, there are 23 private life insurance players and 1 public life insurance company (LIC of India).  There are mainly three parameters one has to look at before choosing a life insurer. First, Claims settled and claims repudiated ratio, Solvency ratio, Duration of claims and commission expenses ratio/ premium for insurer. Most of the information required is available in the annual report on the regulator (IRDA).

The first is to check whether the company is making good on its promises on its claims when the claim is made. There is absolutely no use if you buy a life insurance because it was cheaper than the rest and when the unfortunate day comes after death of the insured, they don't agree on their obligation and repudiate the claim for some reason or another. The individual death claims statement gives the information of all the life insurance company's against which claims that were made, claims were paid, claims were repudiated and claims pending at the end of the year. This information is vital to decifer the actual reliability of a company as against the brand image (however big) they create with advertisements and however low (also in terms of premium) they can fall to dig into your pockets.
Truth be told, Aegon Religare, one of the cheapest life insurer and an online insurer has the worst performance with a 44.52% claims repudiated, which means that there is a 44.52% chance that the claim the family makes after the person's death won't be honoured for some reason or another. SCARY? yes! Just because they advertise the cheapest life insurance does not by any means mean that you should blindly go for it. Shriram (25.87%), Future General (21.53%), IDBI Federal (21%), DLF Pramerica (19.51%), SBI Life (16.73%), Max New York Life (14.9%), TATA AIG (17.07%), Canara HSBC (16.61%), Reliance (8.66%) are in decreasing order of the claims repudiated. So who's best? Star Union (1.38%), ICICI Prudential (3.14%), Kotak Mahindra (3.89%), HDFC Standard (3.97%), Birla SunLife (4.99%), Metlife (6.06%) are among the better perfomers. LIC still beats all of them with a repudiation rate of just 1%.

The Solvency of an insurance company corresponds to its ability to pay claims. An insurer is insolvent if its assets are not adequate [over indebtedness] or cannot be disposed of in time to pay the claims arising. As on March 2011, the lowest solvency ratio is of LIC of India with a solvency ratio of 1.54. That means, he has assets worth 1.54 for every liability of 1. All the private sector companies have higher ratios and I would believe that IRDA regulates effectively based on experiences from other global companies and sees that the Indian insurers are solvent. So I wont worry about this much.

The next criteria is to know is how long did the company take to settle the claim. This is useful to evaluate the efficiency of the claims processing. The 'Duration wise settlement of death claims' table in the IRDA annual report gives this information. Based on the life insurers who have settled atleast 4,000 claims, the percentage of policies that have taken over 6 months or more to settle are 0.02% for Birla Sunlife, 0.1% for Reliance Life, 0.12% for SBI Life, 1.24% HDFC Standard, 1.69% for Bajaj Allianz, 1.70% for Max New York Life, 3.87% for ICICI Prudential. The lesser the better. Hence, Birla Sunlife wins hands down in this group.

The cost of a policy comes from 2 things: the expected probability of a person dying in each category and the subsequent cost related to the claim and the commissions on the policies. It is difficult to analyse every policy of every company and assuming their probablities used by the companies are fair, we can get a good deal by choosing the policies where commissions to agents are least. IRDA doesnt give company wise information on this, but a public sector, private sector data.  LIC, the only Public sector company has higher commissions across all types of premiums(regular, single, first year, renewal and total). And correspondingly, LIC of India's premiums are much higher than that of other companies for even a simple term insurance plan.

Other factors for choosing a life insurance policy would be size, and brand image. Based on the above data and the necessary trade-offs, I believe Birla Sunlife Life insurance is the best bet.

Life insurance isn't everything

One usually thinks that getting life insurance is a great way to cover for your life and to provide for your family 'Zindagi ke baad bhi'. I am sure at least it is portrayed that way and many more believe it so. Till, you go through the 'fine' print.

Forget, about dying doing dangerous stuff like sky-diving or adventure sports and getting yourself killed.

Whats shocking is that a lot of risks are just not covered in the policies.

Being a victim of a terrorist attack on the way home need not necessarily be covered in your life insurance. My document clearly mentions "War, invasion, hostilities (whether war is declared or not), civil war, rebellion, revolution or taking part in a riot or civil commotion are excluded". This means that tomorrow if a neighbouring country bombs some city and people die, then life insurance won't cover you.

Imagine being part of a peaceful protest and suddenly police starts lathi charging you and some commotion occurs. The insurance may mostly deny your claim.

What's worse is that certain accidents are also not covered. Especially nuclear contamination. I find this highly ridiculous. Why cant all these risks be covered as riders. I believe a price can be put on any risk. If you believe its impossible or too difficult to measure such a risk, stop being in the life insurance business because you are no longer insuring lives.

Whats the point of having a life insurance when all it effectively covers is just road accidents and we need to depend on the govt. money for decades together after a disaster like the Bhopal tragedy. 

The worst part is life insurance is it makes me stupid even if I am smart enough to buy life insurance. Thats the real irony of it.

Changing the Life insurance game in India in one masterstroke

There is a great big market opportunity for one of the life insurance players in India to become get a good big market share pie and tap the untapped markets. They need to unsettle the market just as Tata Docomo radicalised the telecom market with the 1paise/second plan. Everyone knows that there is a huge market for life insurance in India but none of the existing insurance players are taking the strategy of large volumes and lower commisions as in the best and purest form of life insurance called term insurance. Today when people talk of life insurance, people's first recall is LIC or rather LIC is the synonym of investments and life insurance together. The company which is willing to go the term insurance path can show that the benefit of low insurance costs for huge amounts of sums insured and can easily attract people. As many Indians are too stuck up with the idea of getting something back, they can show an advertisement of how somebody buys a car/bike insurance without a second thought for saving his/her bike, but when it comes to their own life, they dont seem to be concerned about the family in case of the loss of the earning member. The potent combination of low premium costs and likening it to auto insurance can get the middle class out of the rut of LIC's highly agent driven (read brainwashing) customers.

Now, only if someone out there is listening!

Whacky insurance policies

Whacky insurance policies go beyond insuring one's precious backside for millions of $$$.

Here are some really exotic insurance policies taken.

Immaculate Conception: Three Scottish virgins were so convinced that God might impregnate them that they took out a policy that would pay them $1.5 million if it happened.

Chest Hair: An unknown celebrity asked an insurance company to insure his manly chest rug for $7 million. Alas, he never took out the policy.

Giant Crab: When the Birmingham Sea Life aquarium took possession of a gigantic Japanese spider crab measuring 10-feet across, they assured the public wasn't dangerous-then took out a $1.5 million policy against visitor death or dismemberment.

http://www.hindustantimes.com/wackiest-insurance-policies-ever/article1-602461.aspx

Dirty insurers

I intend to increase my life insurance cover once I join a company and I started looking for the most economical term plan. (Comprehensive plans are not for a person like me who wants more than the normal returns of 6% on an investment and I don't want Ulips as there is no guarantee that I will die when the market is on a high. Chances are more likely that a market crash will get me a heart attack.)

So, my search started. First went back to my current insurer's website and found the premium tables. There were 4 "bands" in the premium table pdf with no explanation what the bands are. Under each band, there is indeed a very understandable table of "your age" v/s "years of insurance required". The value in the table is the annual premium for every Rs.1000 insured.

Unable to understand the bands, I tried using their premium calculator.

"Please provide the details in the given format to calculate the appropriate life insurance cover to meet your family’s needs.

Your Name  

Your Age  

Gender 

State

City

Pin Code

Email ID

Mobile Number

Click next to continue"

I don't know whether to laugh or cry at this point of time. How come a mandatory email id, mobile number and name is required to calculate a premium for a scheme?

Am I mad enough to give these to get some much needed spam for giving away my limitless time?

I looked at another insurer. This company has many plans under  protection plans itself, namely:

Reliance Super Golden Years Term 10 Plan 

Reliance Super Golden Years Basic Plan

Reliance Super Golden Years Plus Basic Plan

Reliance Super Golden Years Plus Term 10 Plan

Reliance Super Golden Years Value Basic Plan

Reliance Super Golden Year Value Term 10 Plan

Reliance Wealth + Health Basic Plan 

Reliance Traditional Super InvestAssure Plan 

Reliance Term Plan

Reliance Simple Term Plan

Reliance Wealth + Health Term 10 Plan 

Reliance Special Term Plan

Reliance Credit Guardian Plan

Reliance Special Credit Guardian Plan

Reliance Endowment Plan

Reliance Super Five Plus

Reliance Connect 2 Life

Reliance Whole Life Plan

Reliance Cash Flow Plan

Wow! I am so excited! I feel like a kid in a toy store...Yay! (Ya right!)

I would personally like to slap the marketing manager for the ease with which one can make out the plan looking at the name.

I remembered a subsidiary of naukri.com policybazaar.com which enables you to compare the premium rates across various insurance schemes. Here's what I need to provide to compare policies.

Wow! A free credit card on offer....

^#@*^# Marketing managers and insurers.

I feel saddened to know how inconvenient and un-user friendly and non-transparent online marketing is.

Marketing has evolved from looting blind people to forcing a non-blind person into a dark, non-lighted alley to loot him.

Wedding Insurance

Wedding insurance is being offered in India, though under the event insurance category. See for more details:

http://economictimes.indiatimes.com/quickiearticleshow/5085837.cms

Marital insurance

Here is a nice article which will potentially busts the husbands who have been doing auto-delivery of flowers as part of their secret marital insurance policy.
http://financialrounds.blogspot.com/2009/04/marital-insurance.html

Hi, you suckers!!!

Hi, you suckers!!! Yes, those of you who only have ULIPs(Unit linked plans) as their insurance. Have you calculated the total worth of how much your nominee will receive in case of the event of your death tomorrow(God forbid). Under the present scenario, where are the markets are in bad shape, it will be hardly anything worthwhile to take care of your family's needs for the decades to come. (And ya, didn't the agent promise you a lot of money in case of death? WHAT IF you pass away this month? What do you think the nominee will get? Do calculate.) If you are going for a ULIP, be sure to pass away when the market is at a high, else, it is going to be harder on your family.

Sorry for that tone, but it is meant for all those educated stupid people who will buy insurance for cars which are worth more than a few lakhs and value themselves far less than the cost of their vehicles. Sorry, I don't have any regards for people who value their lives less than that of the vehicles they drive. There are so worthless. Coming to my point, ULIP is/was the hottest-est newest-est product in the financial markets in India and the agents get huge commisions on selling these compared to other products and hence they will push you to buy it so much. The truth is the output of the pay in case of death is the maximum of either the assured amount or the cost of your units accumulated. I believe that everyone would like to see their families not suffer financially after the passing away of a loved one(the bread winner). Now for that you need to calculate the amount of money that would be safe enough to keep your family in good financial health. This amount is kind of known per se. How can anyone be so stupid to not secure money for the family and allow the vagarities of the world directly affect your financial position of tomorrow? It is never too late to get a term plan life insurance as they have many benefits:

1. They are the cheapest form of insurance. (For every rupee insured).

2. They pay back the full assured amount.

3. This is just like your vehicle insurance. You pay a certain sum of money every year that you don't get back. If the insured loses his/her life, the insurance company pays the money assured(If the vehicle is lost, the insurance company pays the insured amount).

If you are ok with this form of insurance for the vehicle, then why not for life.

A small comparison: A 24 year old pays around Rs.2800 for one year for a term policy of an insured amount of around Rs.14 lakhs, but I am sure if you own a new car worth far less, your insurance premium will be much more than this(Rs.2800). So if you don't have a term plan, then get yourself one asap.