Project on claims management in life insurance

Claims Management in Life Insurance

Abstract The field of insurance has taken a giant leap at the threshold of twentieth century. Insurance have become an integral part of life of man all over the globe. The proverb ‘Need is the mother of invention’ is proving equally correct in case of insurance Insurance have already had a considerable impact on many aspects of our society.Claims management is another important aspect on insurance. It is complex in nature that is true but it is a driving force to plant confidence in the hearts of people. Claims Management is one of the most challenging business processes in the insurance industry. With the number of stakeholders involved, the dependencies and the logistics, there is a need is to eliminate manual interventions. For many organizations, claim management and administration is viewed solely as a service operation. Claim management is expected to run the claim process efficiently and keep expenses low, but little attention is given to leveraging high-impact opportunities afforded through effective data management. In fact, the data captured in the claim process, which all too often are underutilized, are rich in valuable information for those who know how to extract and analyze it. Claims management is an expert system which generates the rules and regulations for the assessment of general damages using the key information contained in medical reports, surveyor report, loss assessor’s reports, claimant’s petition and the procedures or conditions and warrenties contained in the policy document. The claims management regulates the payment of general damages and also payment of the loss of future earnings. This project is just a gist about how the insurance companies settle the claims, the procedure that is followed, the intermediaries that are involved in the process and so on. This project throws light on various aspects on claims management and the problems faced by them.

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Definition of Insurance: Insurance in its basic form is defined as “A contract between two parties whereby Claims Management in Life Insurance one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed The insurance sector in India has come a full circle from being an amount of money on open competitive market to nationalisation and the back to a liberalised happening of a market again. Tracing the developments in the Indian insurance certain event." sector reveals the 360-degree turn witnessed over a period of almost two centuries.

Introduction to Insurance in India

Today Insurance Companies in India have grown manifold. The insurance sector in India has shown immense growth potential. Even today a giant share of Indian population nearly 80% is not under life insurance coverage, let alone health and non-life insurance policies. This clearly indicates the potential for insurance companies to grow their market in India. In simple terms it is a contract between the person who buys Insurance and an Insurance company who sold the Policy. By entering into contract the Insurance company agrees to pay the Policy holder or his family members a predetermined sum of money in case of any unfortunate event for a predetermined fixed sum payable which is in normal term called Insurance Premiums. Insurance is basically a protection against a financial loss which can arise on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. By paying a very small sum of money a person can safeguard himself and his family financially from an unfortunate event.

Brief history of the Insurance sector The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. 2

Claims Management in Life Insurance Some of the important milestones in the life insurance business in India are: ➢ 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. ➢ 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. ➢ 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. ➢ 1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some of the important milestones in the general insurance business in India are: ➢ 1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business. ➢ 1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices. ➢ 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. ➢ 1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973. ➢ 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

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Claims Management in Life Insurance In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction.The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms. Thereafter many changes have taken place in the insurance sector. Insurance sector in India was liberalized in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. There is a 26% equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49%. The opening up of the insurance sector has led to rapid growth of the sector. Presently, there are 16 life insurance companies and 15 non-life insurance companies in the market. The potential for growth of insurance industry in India is immense as nearly 80% of Indian population is without life insurance cover while health insurance and non-life insurance continues to be well below international standards. Furthermore, over the medium and long term, India’s insurance market will continue to experience major changes as its operating environment increasingly deregulates. On the one hand, a mix of new products, new delivery systems and a greater awareness of risk will generate growth. On the other hand, competition will remain intense as private sector insurers and those about to enter India seek to win market share from the more established public sector entities.

Introduction to Life Insurance Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled 4

Claims Management in Life Insurance permanently or temporarily, there is a loss of income to the household. The family is put to hardship. Sometimes, survival itself is at stake for the dependants. Risks are unpredictable. Death/disability may occur when one least expects it. An individual can protect himself or herself against such contingencies through life insurance. Though Human life cannot be valued, a monetary sum could be determined which is based on loss of income in future years. Hence in life insurance, the Sum Assured (or the amount guaranteed to be paid in the event of a loss) is by way of a ‘benefit’ in the case of life insurance. It is the uncertainty that is risk, which gives rise to the necessity for some form of protection against the financial loss arising from death. Insurance substitutes this uncertainty by certainty. The primary purpose of life insurance is the protection of the family. Insurance in its various forms protects against such misfortunes by having the losses of the unfortunate few paid by the contribution of the many that are exposed to the same risk. This is the essence of insurance –the sharing of losses and substitution of certainty for uncertainty. There are a variety of life insurance products to suit to the needs of various categories of people—children, youth, women, middle-aged persons, old people; and also rural people,etc. Life insurance products could be purchased from registered life insurers notified by the IRDA. Insurers appoint insurance agents to sell their products.Public who are interested to buy life insurance products should receive proper advice from insurance agents/insurer so that a right product could be chosen to suit particular financial needs.

Claims in Insurance An insurance claim is the actual application for benefits provided by an insurance company. Policy holders must first file an insurance claim before any money can be disbursed to the hospital or repair shop or other contracted service. The insurance company may or may not approve the claim, based on their own assessment of the circumstances. Individuals who take out home, life, health, or automobile insurance policies must maintain regular payments called premiums to the insurers. 5

Claims Management in Life Insurance Most of the time these premiums are used to settle another person's insurance claim or to build up the available assets of the insurance company. When claims are filed, the insured has to observe the settled rules and procedures and the insurer has also to reciprocate in a similar manner by undertaking appropriate steps for speedy disposal of claims. It is true that claims settlement is complex in nature, but it is the driving force to plant confidence in the hearts of people, in general and beneficiaries in specific. Insurance claim is a right of insured under a contract of insurance. Insurance contract is a contract by which one party called the insurer promises to save the other party, the insured on payment of consideration known as the premium. The insurer promises to save the insured are nominees/assignees of the insured on happening of event or risk insured. Disputes crop up in the payment of claim when the insurer and the insured understand the process of claims payment in a different way. Claims settlement is an integral part of the insurance business which is a service industry and its growth is interwoven with the people, the customers and consumers of service. It is inevitable for the insurance company to protect and guard the interests of the policyholders. An insurance claim is the only way to officially apply for benefits under an insurance policy, but until the insurance company has assessed the situation it will remain only a claim, not a pay-out.

Claims Management Many insurers have recognized the need to improve the efficiency of their claims management process. They have streamlined processes, eliminated paper-based forms and redistributed work to match the demands to skills. The objective of their efforts is to lower costs, while also increasing overall throughput. Efficiency improvements make tasks quicker and less costly to execute. However, to realize even greater improvements in the claims handling process, insurers must also focus on the effectiveness of their claims decisions. 6

Claims Management in Life Insurance Claims handling costs typically represent 10% to 15% of net earned premium; in contrast, claims payouts represent 40% to 65%. Insurers that expand their focus to include effective as well as efficient claims processing will find a far larger pool of savings opportunities. Technology can play a significant role by providing integrated channels for communication and collaboration. This would help the insurance company increase employee productivity by reducing cycle time and defect rate and also increase employee participation and compliance. Claims Processing sometimes involves collating and sharing large amounts of information among multiple parties involved in a claim, from body shops to adjusters to investigators to lawyers and doctors to claimants and regulators. And it involves the knowledge of experienced adjusters to determine the fair and appropriate outcome of a claim. In fact, losses and loss expenses absorb 80% of premium collected by carriers. Service representatives and claims adjusters need to access data from multiple sources when processing or assessing a claim, which delays settlement time and increases costs. Manual steps reduce transparency of the claims process and raise the risk of fraud, manipulation or simply human error. Customer retention is also a challenge – experts say that 75 percent of customers leave their insurer due to claims issues.

System of claims management Basis of claims management: Claims management means and includes all the managerial decisions and processes concerning the settlement and payment of claims in accordance with the terms of insurance contract. It includes carrying out the entire claims process with a particular emphasis on monitoring and lowering the claims costs. The important elements of claims management are claims preparation, claims philosophy, claims processing and claims settlement. The claims philosophy is defined as procedure or specified approach to settle the claims. It contains the claims management 7

Claims Management in Life Insurance principles and also claims handling methods and procedures. The claims philosophy includes the preparation of guidelines regarding the receipt of claims from the insurers or claimants, analysis of the claims, consideration of the possible decision on the particular issues and disputes, evaluating the impact of the claims cost and expenses, relation of claims to the consumer satisfaction, monitoring the claim payment and improving the efficiency of the claims settlement and payment systems and avoiding unnecessary disputes of claims. The claims process includes the basic claims procedure and handling of claims. The handling of claims includes the monitoring of situation or events, which cause the loss to the insured subject matter and give a cause to the insured to make a claim. The claims process contains two fold procedures to be followed by the insurer and insured. From the point of view of the insured, it includes the suffering of loss or the damage, understanding and identifying the cause of action, information or giving notice of claim or loss to the insurer, providing sufficient proof of loss to the insurer or his agent or the loss assessor and surveyors. The insurer, on the receipt of the claim from the insured, has to take certain immediate precautions such as verifying the claims, reviewing the claim application, respond to the claimant, carry out claims investigation, claims negotiation, claim settlement and claim payment.

Stages in claims system:

The claims handling is the integrated part of the claims management and executes the decisions made by the claims management machinery of an insurance company. Though claims management and claims handling are generally the same externally, they are different in nature.

• Claims management: 8

Claims Management in Life Insurance Claims management is a managerial function in which the insurer has a definite role to play in analysis of data, processing of application, decision-making, budget planning, and business control and fund management. It is a subjective concept. In claims management, the attention is on making principles and guidelines for smooth and profitable settlement of claims in the hands of the insurer. Claims management includes the entire process of claims handling and claims payment. This includes review of the claims performance, monitoring of claims expenses’, legal costs, settlement costs, compromises and planning for future payments and avoiding the delay and disputes in payment of claims. It is a control system that has an important place in the claims management. It also includes risk management techniques, loss assessment, and business forecasting and planning. • Claims handling: Claims handling is the procedural way of processing a claims application. Claims handling involves utilization of the laid down principles as yardsticks and the measuring methods in settling the issues before it occurs. Claims handling is a traditional form of managing the claims settlements. It includes handling of various stages of the insurance claims. It is functional in nature such as claims review, investigation and understanding the negotiating process. It does not include any managerial outlook such as risk management, policy making and decision making. Thus, it is concerned with the procedural methods and also interpretations of the claims philosophy. Claims handlingmay change from case to case depending on the merits of the claim, but it will not drastically change every moment. It is a flexible as well as a rigid way of handling the issues having interest of the insurer in mind. It is a systematic way of receiving the claims and following other procedures required for quicker and efficient payment of the claims. Every insurer has a standardized way of claims handling which will improve quality

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Claims Management in Life Insurance and customer service. The insurer’s commitment to the service of the customer is a part of the claims management.

Life Insurance Corporation of India The Life Insurance Corporation (LIC) was established about 44 years ago with a view to provide an insurance cover against various risks in life. A monolith then, the corporation, enjoyed a monopoly status and became synonymous with life insurance. Its main asset is its staff strength of 1.24 lakh employees and 2,048 branches and over six lakh agency force. LIC has hundred divisional offices and has established extensive training facilities at all levels. At the apex, is the Management Development Institute, seven Zonal Training Centers and 35 Sales Training Centers. LIC of India is one of India’s leading financial institutions, offering complete financial solutions that encompass every sphere of life. From commercial banking to stock broking to mutual 10

Claims Management in Life Insurance funds to life insurance to investment banking, the group caters to the financials needs of individuals and corporate. The LIC has a net of over Rs. 1,800 crore. With a presence in 82cities in India and it services a customer base of over 20, 00,000. At the industry level, along with the Government and the GIC, it has helped establish the National Insurance Academy. It presently transacts individual life insurance businesses, group insurance businesses, social security schemes and pensions, grants housing loans through its subsidiary; and markets savings and investment products through its mutual fund. It pays off about Rs 6,000 crore annually to 5.6 million policyholders. It has been started with the objectives of spreading Life Insurance widely and in particular to the rural areas, meet the various life insurance needs of the community that would arise in the changing social and economic environment.

Organizational Structure of LIC The organization is the form having independent or co-ordinated parts for unit action for the accomplishment of common objectives. As such the organization relating to insurance business is a form having different functional divisional units with the ultimate aim of providing effective services to the customers of the insurance products. An effective organization is essential to share information and effectively execute the managerial decisions. The organizational structure differs for different types of business. The organization structure is based on the objectives or mission of the business organization. The organization should be structured with an aim to coordinate, not only with internal managers or groups, but also with the external world, the customers, authorities and other persons directly or indirectly interested in it. The insurance business is concerned with the functions of marketing of insurance products and its related functions like premium collections and premium fixings, accepting the insurance proposals, issuing policy documents, maintain records relating t the policies issued everyday in chronological order, and also payment of claims. The claims 11

Claims Management in Life Insurance department is associated with the receipt of claims and arrangement of claims investigations. After it is decided whether to make payment to the assured or to defer it, the insurance company may seek guidance from the panel of advocates. The insurance company needs to protect the company from the claims litigations of the clients by defending the claims in the courts and supervise other alternative dispute resolutions. Thus the insurance organization is associated with the marketing of policies, underwriting of policies, claims payment, claims defending and stff matters. The delegation of duties to each unit with well-defined limitations, responsibilities and decision making are all related to the organizational structure and management.

Basic structure of LIC

Today, most of functions, nearly 90%, related to the marketing and other related activities of the insurance consumers are dealt and handled at the branch level. The branch office, depending upon its business, is headed by a manager and each function of insurance business like marketing, underwriting of policies, accounts, claims payments, staff and administration matters are identified as departments of the branch office with responsible officials such as Administration and Accounts Officers. The managerial decisions are based on the information supplied by the AAO, the functional head at root level. All the functions of claims will be settled at the branch level. The AAO of life insurance business will deal with maturity and death claims. If the branch is smaller, all the types of claims will be dealt by one AAO and if the branch is bigger with good number of claims, they will be settled by, separate officials. At branch level, these officials have to maintain cordial relations and establish a system of sharing information with the other departments, 12

Claims Management in Life Insurance relating to the policy documents, payment of premium and using the staff or the agents for the settlement of claims disputes. The branches maintain records relating to the claims payment and claims rejections. They wiill submit the reports to the Zonal Officer, who in turn will forward it to the Head Office or Corporate Office. The branches report to their respective divisional office. If any branch gets a claim and there is a problem in identifying the correct claimant among the claimants, or otherwise, a dispute of risk crops up, which will be forwarded to the divisional office with its comments. The divisional office after receiving the papers, verifies them, applies legal knowledge and skills, or seeks advice from skilled persons and tries to solve the problems. The divisional office is responsible to settle the claims referred by the branch office and also report the same to the zonal office, which in turn will consolidate the data and submit the same as required by the statute or otherwise under any law to the government. The government will put the same for the approval of the both the houses. At the division office level, the claims department generally deals with the claims, which are pending with the branches because of some disputes, or some claims which are of high value. The investment portfolio and establishment and maintenance of reserves for the purpose of claims payment or otherwise required under the law is the important function of the central office. Thus the organizational structure of the insurance business is most flexible and decided, based on the above said factors.

Claims Management Department The claims department is one of the key departments in an insurance company. The claims department has the following functions to perform:  To provide the customers of insurance and reinsurance companies with high quality of service. This role gives a long-term edge to the company and hence is referred to as the strategic role.  To monitor the claims and see that whether the benefits of insurance exceed the costs of claims. This role is referred to as the cost-monitoring role of the claims department.  To see that the expectations of the customers are met with regard to speed, manner and efficiency of the service. This is called the customer service role of the claims department. 13

Claims Management in Life Insurance  To meet the standard of service, to keep up to the customers expectations and still operate within the budget. This is the managerial role of the claims department. Both the quality of the service and cost of claims is the responsibility of the claims department. The department has to look after the proper mix of the two. The cost of claims must not exceed a given level in trying to render a very good service to the customer. So the claims department should work with due diligence to balance the two parameters. The estimation of future liabilities is just as important as control over the claim payments. As the claims department is in direct touch with the customer, it has to ensure the quality of service. The claims department has the sole responsibility of managing claims. Claims management by far is the most complex issue in an insurance company. The people in the claim department should have good interpersonal skills. If they are not able to irk in harmony the customers will not receive quality service. There should be sufficient number of people as managers so as to simplify job and proper human resource systems in place so that such persons are recruited whose philosophy goes with the mission and vision of the organization. It has become imperative for the claims department to provide quality service to the customers so that the corporate goals are achieved. The claims department, in effect, acts as an interface between the customer service quality and insurance company’s objectives. It has to be given the proper weight age and motivation so that the business as a whole functions well.

Types of claims Understanding the requirements for various life insurance benefits (claims) is important for the customers. The overriding condition on claims is the payment of premiums i.e. claims are only payable if premiums are paid up to date. There are various types of claims under life policies. The most common claims include:

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Claims Management in Life Insurance

The general requirements for each of these claims are briefly explained below.

Death Claims:

This is a claim paid when then the person insured dies. For a death claim to be paid the following basic conditions must be fulfilled. ➢ The policy document, original death certificate, burial permit copy of the ID of the deceased must be provided to the insurance company.

➢ A report from the doctor who treated the deceased must be presented to the insurance company.

➢ Claim forms must be completed

➢ A report from the doctor who last treated the deceased person may be required.

➢ A police abstract report may be required where death occurs through an accident.

The documentation required for payment of death claims are easily available and claimants need to immediately inform the insurance company where problems are encountered in securing the documents. 15

Claims Management in Life Insurance The documents are usually required so as to reduce on the possibility of paying fraudulent claims or paying the wrong claimants. Many insurance companies will frequently waive certain requirements under certain special circumstances.

Maturity Claims: A maturity claim is paid out mostly on endowment and education insurance policies whose duration has expired. For example in an insurance policy with duration of 15 years, the maturity value will be paid on the 15th anniversary after affecting the policy. Payment of a maturity claim is a straightforward affair where the customer returns the original policy document and signs a discharge form. The claim cheque is usually released in a period of about two weeks once all required conditions are fulfilled.

Partial Maturity Claims: Most endowment and education policies provide for payment of partial maturities after a given duration. The partial maturity is normally paid on set dates in the policy document. A typical education policy of 10 years provides for payment of 20% of the sum insured after four years and every year thereafter until the expiry of the policy. The life insurance company usually prepares partial maturity cheques in an automated manner and the customer does not have to claim. The cheque is either sent directly to the customer or the nearest branch office for ease of collection.

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Claims Management in Life Insurance

Surrender Value Claims: When a customer is unable to continue with the payment of premiums due to unplanned events like retrenchment or dismissal he has the option of encashing the policy to receive the surrender value so long as the policy has been in force for more than 3 years. The procedure for lodging this type of claim is very simple and is similar to the maturity claim whereby the customer returns the policy document and signs a discharge form. The claim cheque is then paid to the customer within two weeks.

Policy Loans:

This is strictly not a claim but a benefit given out by life companies for life policies that have been in force for at least three years. To receive a policy loan directly from a life company entails assigning the policy to the life company and receiving a loan cheque. The insurance policy can also be assigned to a bank and the loan is then granted by the banks and the policy document utilized as security for the loan.

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Claims Management in Life Insurance Disability Claims:

This will arise in life policies where the customer purchases a personal accident policy rider as an additional benefit. Disability claims are payable subject to sufficient medical evidence being provided as proof of disablement.

Guidelines for claims settlement by IRDA

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Claims Management in Life Insurance Proposal for insurance: 1) Except in cases of a marine insurance cover, where current market practices do not insist on a written proposal form, in all cases, a proposal for grant of a cover, either for life business or for general business, must be evidenced by a written document. It is the duty of an insurer to furnish to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal form. 2)

Forms and documents used in the grant of cover may, depending upon the circumstances of each case, be made available in languages recognized under the Constitution of India.

3) In filling the form of proposal, the prospect is to be guided by the provisions of Section 45 of the Act. Any proposal form seeking information for grant of life cover may prominently state therein the requirements of Section 45 of the Act. 4)

Where a proposal form is not used, the insurer shall record the information obtained orally or in writing, and confirm it within a period of 15 days thereof with the proposer and incorporate the information in its cover note or policy. The onus of proof shall rest with the insurer in respect of any information not so recorded, where the insurer claims that the proposer suppressed any material information or provided misleading or false information on any matter material to the grant of a cover.

5)

Wherever the benefit of nomination is available to the proposer, in terms of the Act or the conditions of policy, the insurer shall draw the attention of the proposer to it and encourage the prospect to avail the facility.

6) Proposals shall be processed by the insurer with speed and efficiency and all decisions thereof shall be communicated by it in writing within a reasonable period not exceeding 15 days from receipt of proposals by the insurer.

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Claims Management in Life Insurance

Matters to be stated in life insurance policy: 1. A life insurance policy shall clearly state: a) the name of the plan governing the policy, its terms and conditions; b) whether it is participating in profits or not; c) the basis of participation in profits such as cash bonus, deferred bonus, simple or compound reversionary bonus; d) the benefits payable and the contingencies upon which these are payable and the other terms and conditions of the insurance contract; e) the details of the riders attaching to the main policy; f) the date of commencement of risk and the date of maturity or date(s) on which the benefits are payable; g) the premiums payable, periodicity of payment, grace period allowed for payment of the premium, the date the last instalment of premium, the implication of discontinuing the payment of an instalment(s) of premium and also the provisions of a guaranteed surrender value. h) the age at entry and whether the same has been admitted; i) the policy requirements for (a) conversion of the policy into paid up policy, (b) surrender (c) non-forfeiture and (d) revival of lapsed policies; j) contingencies excluded from the scope of the cover, both in respect of the main policy and the riders; k) the provisions for nomination, assignment, and loans on security of the policy and a statement that the rate of interest payable on such loan amount shall be as prescribed by the insurer at the time of taking the loan; l) any special clauses or conditions, such as, first pregnancy clause, suicide clause etc.; and m) the address of the insurer to which all communications in respect of the policy shall be sent. n) the documents that are normally required to be submitted by a claimant in support of a claim under the policy.

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Claims Management in Life Insurance 2. While acting under regulation 6(1) in forwarding the policy to the insured, the insurer shall inform by the letter forwarding the policy that he has a period of 15 days from the date of receipt of the policy document to review the terms and conditions of the policy and where the insured disagrees to any of those terms or conditions, he has the option to return the policy stating the reasons for his objection, when he shall be entitled to a refund of the premium paid, subject only to a deduction of a proportionate risk premium for the period on cover and the expenses incurred by the insurer on medical examination of the proposer and stamp duty charges. 3. In respect of a unit linked policy, in addition to the deductions under sub-regulation (2) of this regulation, the insurer shall also be entitled to repurchase the unit at the price of the units on the date of cancellation. 4. In respect of a cover, where premium charged is dependent on age, the insurer shall ensure that the age is admitted as far as possible before issuance of the policy document. In case where age has not been admitted by the time the policy is issued, the insurer shall make efforts to obtain proof of age and admit the same as soon as possible.

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Claims Management in Life Insurance

Claims procedure in respect of a life insurance policy: 1) A life insurance policy shall state the primary documents which are normally required to be submitted by a claimant in support of a claim. 2) A life insurance company, upon receiving a claim, shall process the claim without delay. Any queries or requirement of additional documents, to the extent possible, 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. 3) A claim under a life policy shall be paid or be disputed giving all the relevant reasons, within 30 days from the date of receipt of all relevant papers and clarifications required. However, where the circumstances of a claim warrant an investigation in the opinion of the insurance company, it shall initiate and complete such investigation at the earliest. Where in the opinion of the insurance company the circumstances of a claim warrant an investigation, it shall initiate and complete such investigation at the earliest, in any case not later than 6 months from the time of lodging the claim. 4) Subject to the provisions of section 47 of the Act, where a claim is ready for payment but the payment cannot be made due to any reasons of a proper identification of the payee, the life insurer shall hold the amount for the benefit of the payee and such an amount shall earn interest at the rate applicable to a savings bank account 22

Claims Management in Life Insurance with a scheduled bank (effective from 30 days following the submission of all papers and information). 5) Where there is a delay on the part of the insurer in processing a claim for a reason other than the one covered by sub-regulation (4), the life insurance company shall pay interest on the claim amount at a rate which is 2% above the bank rate prevalent at the beginning of the financial year in which the claim is reviewed by it.

Procedure for settlement of claims

Settlement of maturity claims: Under LIC, claims can arise on maturity of policy of the policyholder. The processing of claims by maturity is normally undertaken by Divisional Office of LIC about two months before the date of maturity. . The LIC sends intimation before the maturity date. If the notice of maturity is not received and the date of maturity is known to the policyholder, then the policyholder can take the necessary steps to get the due Maturity amount. The Corporation sends Maturity Intimation along with the discharge forms to the policyholder informing him about the requirements for the settlement of claim.

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Claims Management in Life Insurance 1) In case the maturity intimation is not received by the policyholder till around 2 months before the date on which the policy matures, he should contact the concerned Divisional Office and obtain a copy of the maturity intimation. 2) Policy Document (if not in the custody of LIC as security for loan): On receipt of the maturity intimation, the policyholder should send the original policy document along with the last receipt of insurance premium paid. The policy document needs to be submitted in original unless it is in custody of LIC as security for loan. 3) Age proof document (if age has not been admitted earlier): The policyholder should also submit his age proof to the Corporation in case it has not already been submitted. In case, the policyholder has already submitted his age proof to LIC, the form of Discharge (Form No. 3825) to be executed by the policyholder, is also sent along with the Maturity Intimation.

4) a. b. c. d. e. 5)

L.I.C. accepts following documents as valid age proofs: Horoscope of the assured Certificate relating to the baptism ceremony among Christians Birth certificate from the Municipal Corporation High School Certificate Service book. Discharge Form No. 3825 duly stamped & signed, attested by a witness: The form of Discharge (Form 3825) should then be properly filled, signed and sent to the Office of LIC from which it was issued. The signature must be on a revenue stamp and must be attested by a witness.

6) Assignment / Reassignment Deed, if any: In case the policy or any Deed of Assignment or Reassignment is lost by the policyholder, he has to submit an indemnity bond along with a reliable surety of sound financial 24

Claims Management in Life Insurance standing acceptable to LIC. The indemnity bond has to be in a particular format (Form 3815). In such a case the claim is settled in the absence of the policy document. 7) Existence certificates in case of children’s Deferred Assurance & Pure Endowment Policies. 8) In due course, LIC sends a cheque to the policyholder for the money due to him as per the terms of the policy.

LIC upon the receipt of the claim form will act in the following manner:

➢ LIC will send an acknowledgement to the effect that the claim form has been received and the aforesaid document will also state that the insurer is in the process of checking all the necessary items and will get back to the claimant shortly.

➢ Then the insurer will ask for necessary documents that are required for settlement of claims. The claimant has to provide all the necessary documents that are being asked by the insurer.

➢ After verification, the insurer arrives at the final amount that has to be paid to the claimant and then prepares a cheque or such mode of payment as has been agreed upon in the policy or between the claimant and the insured.

Settlement of Death claims: 25

Claims Management in Life Insurance

The death claim amount is payable in case of policies where premiums are paid up-to-date or where the death occurs within the days of grace. The following is the process of settlement of claims in case of death claims: 1) Intimation of death: The first requirement of the Corporation in the case of death claim is that an "intimation of death"’ should be sent to the branch office of the LIC from where the policy was issued. The intimation needs to be sent by the person who is entitled to get the proceeds of the policy. It may be: i. the nominee or ii. the assignee of the policy or iii. the deceased policyholder’s nearest relative. The letter of intimation of death should contain the following information: i. name of the life assured ii. a statement that the life assured is dead; iii. the date of death; iv. the cause of death; v. the place of death; and vi. policy number / s vii.claimant’s relationship with the assured or his status (nominee, assignee, etc.). Soon after the receipt of the intimation of the death, the branch office sends the necessary claim forms along with instructions regarding the procedure to be followed by the claimant. 2) Submission of Proof of Death The proof of death required to be submitted is a certificate by Municipal Death Registry or by a Public Record Office which maintains the records of births and deaths in the locality. Besides this some other 26

Claims Management in Life Insurance statements or certificates are also required to be given in the prescribed Claim forms: • Statement from the doctor policyholder’s last illness.

who

attended

the

deceased

• Certificate of treatment in the hospital where the policyholder died or was treated by the hospital authorities. • Certificate of burial or cremation to be given by an independent person who attended the funeral and has seen the dead body. • Certificate from the employer if the policyholder was in employment at the time of death. 3) Submission of Proof of Age The claimant should submit age proof of the policyholder to LIC in case it has not already been submitted. L.I.C. accepts following documents as valid age proofs: (i) Horoscope of the assured (ii) Certificate relating to the baptism ceremony among Christians (iii) Birth certificate from the Municipal Corporation (iv) High School Certificate (v) Service book.

4) Certificate of Ownership. When the policy is validly assigned, or a nominee has been designated in the policy, no further proof of title is necessary. In any other case, the certificate of title is necessary. In such a case the corporation would require legal evidence of title such as Succession Certificate or Letters of Administration or Letters of Probate or a Will. 5) Payment and Discharge After completing all the above formalities, the insurance company issues a discharge form for completion, which is to be signed by the person entitled to receive policy money. That is, it should be signed by: 27

Claims Management in Life Insurance • the nominee, in case nomination was made under the policy; • the assignee, in case the policy was validity and unconditionally assigned; • the legal representative or successor. In due course, LIC sends the cheque for the amount due to the person entitled to receive the same. 6) Early death claims: If death occurs in less than three years from the date of the policy, following requirements must be complied with: i. Policy Document ii. Discharge Form 3801 iii. Assignment / Re-assignment Deed, if any iv. Age Proof Document (if age has not been admitted earlier) v. Certificate of treatment issued by the hospital authorities where the deceased policyholder was treated last, on Claim Form ‘B1’ (F No. 3816) vi. Certificate by the employer if the deceased was an employee, on the Claim Form ‘E’ (F No. 3787 revised) vii.Certificate of Death viii.Legal Evidence of Title (if policy is not assigned / nominated) ix. Claim Form ‘A’ (F No. 3783) x. Statement from the Doctor who attended last the deceased policyholder, on Claim Form ‘B’ (Form No. 3784 revised) xi. Certificate of Identity and burial by a person who attended the funeral on Claim Form ‘C’ (F No. 3785 revised) 7) Non early claims: If death occurs exactly or after 3 years from the date of the policy the following requirements must be complied with: i. Policy Document ii. Discharge Form 3801 iii. Legal Evidence of Title iv. Death Certificate 28

Claims Management in Life Insurance v. Claim Form No. 3783A vi. Assignment / Re-assignment Deed, if any (if policy not assigned /nominated) vii.Age Proof Document (if age has not been admitted earlier)

8) Ex-gratia Settlement of Death Claims Ex-gratia Settlement of Death Claims are not a right claim but on grounds of humanity presently LIC is giving such claim amount for the policies which are not in force but • If Death occurred after the expiry of grace period of premium due date then Full Sum Assured along with the bonus will be payable as Ex-gratia settlement • If Death occurred after three months but less than six months after the expiry of first unpaid premium date half of the Sum Assured without bonus will be paid as Ex-gratia If the death occurred between six months and one year from the due date of the first unpaid premium date, claim may be considered to the extent of the proportionate notional paid-up value on the basis of actual premium paid.

Important terms in claims 29

Claims Management in Life Insurance

Maturity claims Beneficiaries in claims:

The claimant in life insurance policies at the time of payment of maturity claims of life insurance policies can be the policyholder or the assignee to whom the holder of the policy has transferred the policy. The persons entitled to claim under these policies can be:

• The assured himself.

• The payee, whose name appears in the benefit schedule of the policy as a party interested.

• The creditor who has been properly assigned and nominated to receive the payment under the policy.

Amount payable:

The amount payable upon the maturity of the policy, i.e., non-happening of the event is the sum assured plus profits and bonus that accrues with the policy. The profits are paid on pro-rata basis, i.e., in the proportion of the premium paid and declared are bonuses. The payment of profits is a condition inserted as a clause in the policy itself and it becomes an 30

Claims Management in Life Insurance obligation on the insurer to pay the amount of such profit as may be accrued to the insured.

Dispute in payment of maturity claims:

The disputes arising in such cases are general and may be restricted to the proof of age, if the age is not admitted at the time of issuing the policy document and about the good title of the claimant on the policy. Incase of the insurer shrugging off his liability to make the payment of profits which are accrued to the insured upon maturity and in case the payment of profit is as per the contract, the insurer has every right to move to the court and to claim for such payment. The policy document and scheme of the policy contains the details of the payment and the payment made accordingly may not drag the parties into litigations.

Death claims

Beneficiaries:

The claimants or the beneficiaries under the life insurance policies, paid on the happening of the events which is death of the assured, are as follows:

• The legal heirs of the policyholder.

• The nominees, assignees and transferees

31

Claims Management in Life Insurance • The wife and children of the assured under the Married Women’s property Act

• The creditor in whose name the policy has been endorsed

Amount payable:

Amounts that can be paid under a life insurance policy are as follows:

• The amount insured or the face value of the policy

• Bonus if declared by the company, which is recoverable as an insurance amount.

• The share of profits in case of participation policy.

• Surrender value, where the policy lapses due to non-payment of the premium or where the assured surrenders the policy, the insurance company may pay a percentage of the premium paid according to the rules of the company.

32

Claims Management in Life Insurance

Factors affecting the claims settlement The factors that affect the claims settlement are as follows:

 The policy should be in force on the date of the event.

 The risk and cause of event should be covered by the policy.

 The cause of loss or the event should be directly related to the loss. A remote cause has no place in the settlement.

 The loss should not have been caused with an intention to gain from the situation.

 The preconditions or warranties have to be compiled with. When conditions to be fulfilled before affecting the cover of the policy, are not performed, the cover of insurance will not come into effect even though the premium is paid and accepted by the insurance company.

 Presence of insurable interest, in case of the property insurances, at least at the time of happening of event or loss sufferings. Without 33

Claims Management in Life Insurance having the insurable interest in the subject matter, no person can get benefit or compensation.

 The assured should suffer loss, actual or constructive, to get

compensation. The assured should riot make benefits or gains out of the insurance contract as the insurance contract is of indemnity in nature. It only makes good the loss suffered by the assured and is not a source of gains.

 Sufficient documentary evidence of loss should be presented along with the application form.

 Multiple claims and reciprocal claims will be settled as per the terms of the contract of insurance.

 Right to appeal or file a petition with the tribunal or the courts cannot be withdrawn. If the terms of the policy insist upon arbitration, it is not the end of justice for the insurer or the assured.

The insured may opt for the following alternatives while settling the claims:

 Pay the claims as reported by the surveyor or the claims made by

the insurer whichever is less.

34

Claims Management in Life Insurance  Take help of the agent or some other persons and compromise or to

come to an agreement with the assured in case of a disputed claim.

 If the claim is rejected there may be litigation on the insurer. The litigation will cost the insurer more, as the insurer has to pay the interest for the amount due if he losses the litigation.

 Pay ex-gratia, if the claim is totally baseless and non-acceptable, on humanitarian grounds and to avoid complications in future.

 Arrange to replace the asset either by repairing the same or by purchasing a similar asset from the market.

 Repair the asset to provide the similar type of services as provided before the happening of event.

35

Claims Management in Life Insurance

Delay in claims settlement The time value for the settlement of a claim is of importance. All claim papers have to be submitted within a limited period mentioned in the policy document or otherwise stated in the Act. In some cases, the death of a person or the accident of vehicle has to be intimated immediately either orally or in person, either by the policyholder or the claimant or by the representative of the claimant.

The time element is very important in the claims payment for the following reasons:

 The delay in the claims settlement will have an adverse impact on the goodwill and marketing of the insurance.

36

Claims Management in Life Insurance  The cost of claims will increase with the extension of time.

 The insurer may be asked to pay the interest on the unpaid insurance amount because of the delay. The court may direct the insurer to pay the costs of the case to the assured, which results in mounting up of costs.

 The delay in payment may lead to litigation which is expensive.

 Unproductive use of manpower to defend, expenses incurred and waste of time on litigations will be an extra burden on the insurer.

 Litigations will affect on the productive areas of the business particularly in the marketing of the insurance business.

 The delay also leads to the increasing number of cases with consumer protection councils.

Thus the delay in the settlement of the claims will have an impact on the present and future business of the insurance along with the cost burden. As such it is essential to have quicker claim settlements.

37

Claims Management in Life Insurance The delay in claims settlement may be due to the following reasons:

Late submission of claim form: The claim forms may be submitted late because of the ignorance or lack of knowledge of the existence of the insurance policies against the lives of the persons who face the event or no information is given to the beneficiaries or no nominations are made to the policy.

Innocence and illiteracy of the assured: The assured or the claimant may fail to file the papers due to lack of knowledge, to file the insurance claims within a certain period or of the claims procedure.

Not submitting the claims forms in full: If the claim forms are not properly filled, they will fail to provide the required information to settle the claims and as a result the claim settlement will be delayed for want of information.

If sufficient proof or supporting documents are not submitted along with the claim form to facilitate claim assessor to know the date of the event or the cause of the event, claim settlement may be delayed.

 The insurer may not get the cooperation of the insured or the

claimant to finalize the claim or arrive at some compromise.

38

Claims Management in Life Insurance  Destroying the evidences, with or without intention, that could have otherwise facilitated the estimation of the loss payable under the claim.

 Not providing information about the changes in the constitution of

the organization or the changed address of the insured or the claimant or any other information required to make a claim settlement.

 The delay on the part of the insurer may be intentional or due to the pressure of work.

 Lack of motivation, lack of knowledge of importance of the claims settlement, lack of awareness among the staff of the organizations or defective supervision or organizational structure.

The delay in submission of claims or settlements can be avoided by making the assured aware of the facts and importance of the insurance and procedure of claims. The insurers can take the help of the agent or local staff to arrive at a compromise with the claimants when the cases are of complex nature. The organization should be so designed to avoid holding of papers at one or two places. The staff should be trained and the importance of the claims management should be driven into their minds. Use of latest technology to assess the losses and recruitment of able staff will speed up claims settlement.

39

Claims Management in Life Insurance

Role of agents in claims settlement 40

Claims Management in Life Insurance

An agent is a primary source for procurement of insurance business and as such his role is the corner stone for building a solid edifice of any life insurance organization. To effect a good quality of life insurance sale, an agent must be equipped with technical aspects of insurance knowledge, he must possess analytical ability to analyze human needs, he must be abreast with up to date knowledge of merits or demerits of other instruments of investment available in the financial market, he must be endowed with a burning desire of social service and over and above all this, he must possess and develop an undeterred determination to succeed as a Life Insurance Salesman. In short he must be an agent with professional approach in life insurance salesmanship. Such an agency force is expected to be helpful not only in proper field underwriting but also after sales. servicing. concomitant and essential elements for higher retention of business. The insurance company, being a corporate structure, does not deal directly with the customers to promote the insurance business. It avails the help of middlemen to undertake the promotion such on its behalf and the agents are middlemen or intermediaries. Section 40 of Insurance Act 1938 authorizes the payment of the remuneration to the agents for the services. Section 42 of the Act enumerates the essential qualifications for their appointment and issuing of licenses. The appointment of agents to procure policies of insurance is a general practice among insurance companies all over the world. The agents are allowed to market the insurance business but not allowed to issue the policies. The agent has no right to conclude the insurance contract and the final approval or rejection of contract proposal is vested with the insurer, the principal. But, in promoting the insurance business, the agent binds the principal to all activities such as receipt of premium, enquiries and publishing of information of the insurance contracts and products.

The agent is bound by duty and responsibility to convey the message to the insurer. But, giving the information to the agent does not bind the insurer as the agent is appointed only to promote the insurance 41

Claims Management in Life Insurance business. In times of disputes, the agent is under an obligation to settle the issue of claims by way of negotiations and mediations to retain the customer.

Role of agents in an Insurance company 1.

2. 3. 4. 5. 6. 7.

Full information must be provided to the proponent at the point of sale to enable him to decide on the best cover or plan to minimize instances of cooling off by the proponents. An agent should be well versed in all the plans, the selling points and also be equipped to assess the needs of the clients. Adherence to the prescribed Code of Conduct for agents is of crucial importance. Agents must, therefore, familiarize themselves with provisions of the Code of Conduct. Agents must provide the office with the accurate information about the prospect for a fair assessment of the risk involved. The agents confidential report must, therefore, be completed very carefully. Agents must also possess adequate knowledge of policy servicing and claim settlement procedures so that the policyholders can be guided correctly. Submission of proposal forms and proposal deposit to the branch office immediately to avoid delays and to enable the office to take timely decisions. A leaflet or brochure containing relevant features of the plan that is being sold should be available with the agents.

If the agents are well conversant with the claim settlement procedure and assist the claimants in completing the necessary requirements, it would not only quicken the process of claim settlement and enhance their professional status but also help the organization to improve upon their outstanding claim ratio. This, while further boosting the image of the 42

Claims Management in Life Insurance organization may provide them an overflowing fountain for further business in those families. The performance of agents will now depend on not how many hours he works but the quality of service, his attitude to customers and the image that he will create for the entire life insurance business. Thus the agent under the changing economic scenario can achieve their objectives by practicing psycho-marketing strategies. Their objectives are survival and growth. Maximization of business is an end to achieve these objectives.

Role of surveyors and assessor in claims settlment

Insurance users pay their premiums, year after year, trusting their policies to protect their lives or businesses in the event of a loss. However, there are innumerable instances where a genuine insurance user with a genuine loss and a seemingly valid claim, has been denied his claim amount – in full or part. This happens because the insurance company is not able to estimate the total amount of the claims. In life insurance claims the insurance company tries to reject the claims without knowing the cause of the death or loss of the person. Surveyors and Loss Assessors have been around for decades - we have all heard of them and some of us have had occasion to use their services – but it is quite surprising how little is actually known and understood about them – their job, their duties & responsibilities, their role vis-à-vis insurers and insureds, and the insured’s rights and duties vis-à-vis surveyors and assessors. This is because they never come in the lime light but the main work of assessment and survey of loss is done by them.

Duties and responsiblities of surveyors and loss assessors: 43

Claims Management in Life Insurance

A surveyor and loss assessor shall, for a major part of the working time, investigate, manage, quantify, validate and deal with losses (whether insured or not) arising from any contingency, and report thereon, and carry out the work with competence, objectivity and professional integrity by strictly adhering to the code of conduct expected of such surveyor and loss assessor. The following are their duties: i. declaring whether he has any interest in the subject-matter in question or whether it pertains to any of his relatives, business partners or through material shareholding. ii. maintaining confidentiality and neutrality without jeopardising the liability of the insurer and claim of the insured; iii. examining, inquiring, investigating, verifying and checking upon the causes and the circumstances of the loss in question including extent of loss, nature of ownership and insurable interest; iv. conducting spot and final surveys, as and when necessary and comment upon franchise, excess/under insurance and any other related matter; v. surveying and assessing the loss on behalf of insurer or insured; vi. assessing liability under the contract of insurance; vii.pointing out discrepancy, if any, in the policy wordings; viii.satisfying queries of the insured/insurer and of persons connected thereto in respect of the claim/loss; ix. giving reasons for repudiation of claim, in case the claim is not covered by policy terms and conditions; x. taking expert opinion, wherever required; xi. A surveyor or loss assessor shall submit his report to the insurer as expeditiously as possible, but not later than 30 days of his appointment. Provided that in exceptional cases, the aforementioned period can be extended with the consent of the insured and the insurer. 44

Claims Management in Life Insurance

Surveyors and Loss assessors Report: The report of surveyors and loss assessors will be the authentic report. The report contains the investigations and results of the investigations, recommendation and assessments of the surveyor and assessor. The surveyors will state the causes of the loss whether remote or direct, the extent of actual total loss, insurance policy amount, value of salvage and assassment of payment of claims. The report of the loss assessors will be a solid ground to settle the claims. If the insurer is of the opinion that the loss assessor or the surveyor has acted under some personal interests then the insurer may decide to re-investigate the matter and on receiving the report can decidethe claims payment.

Impact of claims on underwriting Insurance underwriting is the process of classification, rating, and selection of risks. In simpler terms, it's a risk selection process. It is the process of selecting and classifying exposures. Underwriting is one of the aspects of insurance that makes most people’s eyes glaze over. But underwriting is one of the most important parts of the insurance process. And knowing what an underwriter does — and why it’s so important — is helpful for people who are shopping for a new policy. Claims settlement has a direct impact upon underwriting. If the claims of certain insurance products are frequently received they have an impact upon the claims reserves and warrant review of the product and take decision either to modify the terms or continue. Addition or deletion of the clauses, changing the time span of the insurance product or other changed, are discussed upon frequency of claims and quantum of amount paid. Thus the underwriter fixes the premium of the product considering various factors such as cost of risk, administration expenses, brokerage or marketing ezpenditure, claims settlement expenses and budgeted profit.the premium is the present value of the future risk. The underwriting department and claims management are related in sharing the information of the claim to find out the current weaknesses, strengths and the possible improvements. 45

Claims Management in Life Insurance Insurance is based on risk. When you get an insurance policy, the insurance company is taking on some of your risk. The underwriter's job is to use all the information gathered from numerous sources to determine whether or not to accept a particular applicant. Individuals applying for individually-owned life and health insurance typically receive more underwriting scrutiny than members holding a group policy. An underwriter’s job is to make sure that the insurance charges just the right amount for the coverage it provides. They figure how much risk is represented, how much coverage the company can offer, and how much that coverage should cost. The underwriter's primary function is to protect the insurance company insofar as is possible against adverse selection (very poor risks) and those parties who may have fraudulent intent. The underwriter has a number of resources that can be called upon to provide the necessary information for the risk selection process. These sources include: • The policy application; • Medical history and examinations; • Inspection reports; • The Medical Information Bureau (MIB); and • The producer or insurance agent. Life insurance companies each have their own extensive policy and procedure manuals they are supposed to follow in determining whether or not to issue an Individual Life insurance policy, and in pricing that policy. The insurer's underwriters typically use a combination of factors that experience shows equates with the risk of death (and premature death). They include the applicant's answers to a series of questions such as: (1) age, sex (except in several states that require "uni-sex" rates, (2) height, weight, and health history (and often family health history -parents and siblings), 46

Claims Management in Life Insurance (3) the purpose of the insurance (4) marital status and number of children, (5) the amount of insurance the applicant already has, and any additional insurance s/he proposes to buy (6) occupation (some are hazardous, and increase the risk of death), and income (to help determine suitability), (7) smoking or tobacco use (, as smokers have shorter lives), (8) alcohol (excessive drinking seriously hurts life expectancy), Thus the claims payment and information relating to the claims settlement will be directly helpful to the underwriting departments either to modify the present product or to consider the information for the future.

Frauds in claims settlement Insurance fraud is any deliberate deception/dishonesty committed against or by an insurance company, insurance agent, or consumer for unjustified financial gain. It occurs and may be committed at different points in the transaction by different parties such as policy owners, third-party claimants, intermediaries and professionals who provide services to claimants. The nature of these frauds may vary from an inflated/exaggerated value of a legitimate claim to a completely fabricated or bogus claim where losses never really occurred. Promises made with no intention to perform them can be treated as a fraud. 47

Claims Management in Life Insurance The essential components of an insurance fraud are:

Intent to deceive

 Desire to induce insurance company to pay more than it otherwise would. The fradulent claims may be of two categories: • The cause or the claim itself is fradulent • The claim may be genuine but the method of calculation or the evidences, or the information submitted may be fradulent in nature. As such any fraud made by the insured or the insurer in concluding the insurance contract or the claims settlement, makes the entire contract viocable at the option of the person on whom the fraud is played. Creating forged documents such as wills, legal heir certificates, assignments of the policies and other papers to support their claim, deliberate destruction of the insured subject with an intention to get the policy amount all constitute different types of frauds. Sometimes the frauds may also result from gross negligence or forbearance to use reasonable exertions and means at hand. The fradulent claim by the assured will deprive him the right to claim as the insurer has the right to reject it.

Examples of insurance fraud: 1) 2) 3) 4)

Creating a fraudulent claim Overstating amount of loss Misrepresenting facts to receive payment Bogus agents/Sale of forged cover notes

How to protect yourself from a fraud:

48

Claims Management in Life Insurance 1. Be wary of unregistered insurance agents. Before purchasing insurance, contact your insurance company to ensure the agent is an authorised agent. 2. Avoid paying premiums in cash. Opt to pay for premiums by cheque or money order. Made payable to the insurance company instead of the agent. 3. Make sure you receive a written policy after payment of your first premium. 4. Immediately examine your insurance policy to ensure the coverage is what you have requested for and ensure that the premium amount paid is reflected in the cover note/policy. Request for a receipt as evidence of payment of premium. 5. Do not sign a blank insurance application, or insurance claim form. 6. Be suspicious if the price of insurance seems suspiciously low from other insurance companies. 7. If you meet with an accident, be careful of strangers who offer you quick cash or urge you to deal with specific workshops, medical clinic or law firm. They could be part of a fraud syndicate. 8. Insist on detailed bills for repairs and medical services rendered and check for accuracy. 9. Discreetly contact your insurance company or the police if you are being defrauded or have been/are being persuaded to take part in a fraud. Provide as many details as possible about the incident name of the individual(s) involved, amount, date(s), and type of fraud.

49

Claims Management in Life Insurance

Comparative analysis of Life Insurance Corporation of India & ICICI Prudential Life Insurance Parameters Life cover

LIC

ICICI Prudential

LIC provides only anticipated cover

ICICI offers 2 options –

50

Anticipated cover

Claims Management in Life Insurance Group Term Cover

Customer service

LIC is profit oriented and customer service & satisfaction are not its main objectives. Claims payment period The claims payment period is long. It takes almost a month to settle the claims except in some cases. Documentation Claims settlement here involves a lot of documentation work. Use of technology LIC has only limited use of technology in claims settlement such as only data is centralised. Efficiency of The persons employees employeed in claims department does not have indepth knowledge and skills. Infrastructure

The infrastructure is not attractive. They follow all the traditional practices.

51

ICICI is customer oriented and customer satisfaction and delight are its main objectives. It settles the claims in 8-10 working days.

It settles the claims with least documentation. In ICICI the claims processing system is all centralised from data input till claims payment. The persons employeed in claims department in ICICI are qualified professionals in the field. The infrastructure is attractive and modern.

Claims Management in Life Insurance

Current data of LIC outflow Payments to poliyholders Claims by maturity Numbers(in lakhs) Amount

134.22 31,955.18

129.29 32,093.90

Claims by death Numbers(in lakhs) Amount

6.73 5,250.40

6.02 4,443.32

Annuties

2,393.24

2,189.64

Surrenders

18,024.59

15,955.31

Total

57,623.41

54,682.17

Outstanding claims at the end of the year

2007-08

2006-07 Rs in crores

2007-08

2006-07

Rs. In crores Maturity Death

123.02 232.41

42.95 205.44

Total

355.43

248.39

Ratio of outstanding claims to claims

0.96%

0.68%

52

Claims Management in Life Insurance payable:

Claims settlement Claims settled during the year Maturity Death Year Number

2007-08 5,138.12

Number Amount

134.22

Amount

31,873.35

6.73

2006-07

129.29 32,101.92 4,383.99

6.02

2005-06

115.58 24,724.58 3,748.58

5.27

Some performance highlights (as at 31/03/2007) : 1. Total Income 2. Total Premium Income 3. Total life fund

: : :

Rs. 1,76,559.28 crores Rs. 1,12,307.77 crores Rs. 5,72,602.80 crores 53

Claims Management in Life Insurance 4. Total Assets 5. Total Investment 6. Investment in Infrastructure 7. Policies in force (31/03/2006)

: : :

Rs. 6,74,514.78 crores Rs. 6,12,705 crores Rs. 71,017 crores

:

21.79 crores

Case study (1) Life Insurance Corporation of India v/s Mrs. Sunanda Kanthale

According to complainant Sunanda Kanthale, her husband Manoharrao Kanthale who worked as a stores superintendent with the Amravati branch of Maharashtra State Corporation, purchased an insurance policy for Rs 20,000 on November 28, 1992. The policy which was a non-medical one, was scheduled to mature on November 24, 2004, she said. Unfortunately Manoharrao passed away on October 22, 1993, 10 months and 25 days from the date of purchasing the instrument. Being the nominee in the policy, she asked for her claim for an amount of Rs 40,000 (under double benefit provision in accident cases) and made an application to the Akola Branch Manager of LIC. The senior manager of LIC (Amravati Division) however refused to settle the claim vide his letter dated August 4, 1994. As the policy was a non-medical one, the reason given by the official for not settling the claim was also a bogus one, she alleged. Sunanda then wrote to the area manager of LIC, Mumbai, justifying her claim. The Mumbai office too (vide letter dated April 20, 1995) refused to settle the claim, Kanthale added. She then lodged a complaint with Akola District Consumers Grievances redressal forum. In the complaint, she appealed to the forum to issue the 54

Claims Management in Life Insurance necessary directives to the LIC for paying Rs 40,000 along with 18 per cent interest, a compensation of Rs 50,000 towards mental tension caused and Rs 1,000 towards legal expenses. Defending the stand taken by the company, the LIC refuted all the allegations made by Sunanda. Manoharrao, who held the policy, had kept the information about his health a secret while purchasing the instrument, the company alleged. The forum referred to columns 14 and 26 in the application form where the policy purchaser had made statements about his health. The form was duly singed by Dr B R Jain, the forum said. The LIC officials produced proofs before the forum regarding heart disorder of the policy holder and sick leave availed by him after taking the policy. However, they could not prove that Manohar was not well on the day of purchasing the policy. The District Consumers Grievances Redressal Forum has directed Senior Divisional Manager of Life Insurance Corporation (LIC), Amravati, Area Manager, Mumbai, and Branch Manager, Akola, to pay Rs 20,000 to Sunanda Kanthale towards insurance claim besides interest on the amount from October 22, 1993, till the date of payment at a rate of 12 per cent. The forum has also directed LIC to pay compensation of Rs 10,000 to the woman for causing mental tension to her during the four years, after her husband's death, in releasing the insurance amount. If the insurance company failed to pay the compensation within two months from the date of receipt of copy of the judgment, the company will be liable to pay interest at a rate of 18 per cent on the amount till final payment besides legal expenses of Rs 250, the forum ruled. The forum also ruled that though the compensation amount, demanded by the complainant, appeared exaggerated, considering the troubles she had to face in the last four years for settlement of claim, the company should pay her Rs 10,000 towards compensation.

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Claims Management in Life Insurance

(2) Life Insurance Corporation of India v/s Neelam Mehta The case arose following the refusal of LIC to pay the insurance money following the death of her husband Mahendrabhai Mehta. LIC had repudiated the life policy alleging that he had hid from it that he was suffering from diabetes at the time of taking the insurance policy in december 1993. On 6 November 1994 he died following a heart attack. Neelam told the consumer forum that she came to know that her husband had a life policy with lic three months after his death, when she started receiving 'forms one after another to be filled through lic agent'. She then filled up all the relevant papers. She also formally informed lic about the death of her husband and claimed the insurance money. thereupon, lic intimated her that the claim for her husband's insurance policy was repudiated because the life assured had 'deliberately' withheld information regarding his 'pre-existing illness which was diabetes' and which, it said, had led to his death. it also alleged that because of this disease he had been hospitalised before his death and that he was a insulin-dependent diabetic. Neelam represented to both the bhavnagar and ahmedabad offices of lic and later to its zonal office in mumbai urging them to recommend her claim to the review committee. This request was made in september 1996 and till now no decision had been taken and the 'matter is still under consideration'. she also denied that her husband was a diabetic or that he had been hospitalised for this. He had not been treated for any ailment during the five years 56

Claims Management in Life Insurance preceding his death, she asserted. The forum comprising its president, K.D. Desai, members Leena Desai and Malaybhai Kantharia, found that lic had failed to prove that Mr. Mehta had made false statement and misrepresentation about his health. "the burden of proving that there was suppression of material fact and that it was made fraudulently" lied on lic and it had failed to prove it, the forum observed. LIC therefore was legally and morally duty-bound to pay the claim, it said. Consumer disputes redressal forum, Ahmedabad, has directed LIC of India to pay up Rs. 50,000 plus 12 per cent interest for seven years, as insurance money due to her after her husband's death. the forum also ordered payment of Rs. 5000 for causing mental agony, hardship and inconvenience to Neelamben. It granted Rs. 3000 as cost.

(3) Life Insurance Corporation of India v/s Lily Rani Roy The petitioner has purchased a life insurance policy from the appellate and premiums were paid regularly. The maturity of the said policy was in 1978. Because of some personal reasons the claim was not filed. The petitioner had filed the claim after 13 years of its maturity. The LIC of India rejected the payment on a plea that claim is time barred claim and as such the claim will not be paid. The petitioner had filed a complaint with Consumer Council with a request to direct the LIC for the payment of the maturity claim as the policyholder had paid the entire premium till the date of the maturity and has the right to receive the claim amount. Assured held LIC guilty under Consumer Protection Act, 1986 Section (I) (g) for deficiency in service. But, the LIC of India pleaded that the Corporation will be maintaining the records for a period of five years only and the Corporation has received the claim notice from the petitioner in 1990 which is far beyond the time. The LIC also produced a photo copy of the

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Claims Management in Life Insurance maturity claims payment register showing the payment of the complainant’s money. After examining all the facts, the State forum has declared that the petitioners cannot claim the payment of policy as it is already time barred. On the decision of the State Commission, the petitioners have filed a petition with the National Commission. The National Commission, after verifying the terms of the policy, has opined that though the payment of claim istime barred, the insurance company should have given notice to that effect or should include a clause in the policy document stating that the time barred maturity claims will not be paid. As the Corporation has filed to bring this information to the notice of the policyholder or failed to create the awareness among the policyholders, it has failed in its duties and as such it is liable to pay the claim to the petitioners. Thus, the National Commission has ordered the payment of time barred maturity claims.

Conclusion The insurance business is major service oriented business in the world. The services offered by the insurance industry is well recognized and utilized by the general public and commercial sector of the world. The life insurance business has covered nearly 40% of the population of the world. Global players with strong brands in the insurance industry today set up their back office operation in low cost countries, manage capital on a global basis, make use of their special skills world wide and use their superior managerial ability to secure leadership positions in the industry. The claims management is an integral part of insurance. It involves the storage , processing and transmission of information relating to settlement of insurance claims. The use of Information Technology also plays a very important role in claims settlement. In managing the claims handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages. As part of this balancing act, fraudulent insurance practices are a major business risk that must be managed and overcome. Disputes 58

Claims Management in Life Insurance between insurers and insureds over the validity of claims or claims handling practices occasionally escalate into litigation which should be solved with due care. In this fast developing scenario it will not be enough if companies have the futuristic strategies. Implementation of the strategies, effectively adapting them to ongoing changes can spell success. The success of claim management depends on the satisfaction of the customers. The customers are attracted to an insurance company by its state of art claim service. Therefore, before designing an IT system for claim management, customer’s expectations are to be taken in to account. The customers, their needs, knowledge of how the market works, and what they want, these are the things that are important for an insurance company for serving the customers in a better manner through better technology.

Bibliography The information is taken from various sources such as books, magazines, articles, internet etc. Books: Theories and Practices in Insurance Insurance watch Business world Business today

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Webliography www.insuremagic.com www.licindia.com www.icicprulife.com www.insurancewatch.com www.insuranceonline.com Search engines: www.google.com www.ask.com

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