All insurance is a simple proposition. You pay premiums and in case of an unforeseen event, the insurance company is expected to pay. This is the belief. However, expectations are sometimes belied and claims do not get paid, resulting in customer dissatisfaction and distrust towards insurance companies. Great companies pay a greater percentage of claims and pay them faster because they have efficient processes both before taking you on as a customer and after they have sold you a policy. These companies have great customer satisfaction indices and are usually more compliant to regulations than companies that have poor claim settlement ratios. This is the reason why claims settlement ratios of companies are of great importance to you as a customer when choosing an insurance company.
As a customer it is in your interest to choose a company with healthy claims settlement ratios, not only because you will get your money on time but because you are actually dealing with a company that respects you as an honest individual.
Because prevention is better than customer dissatisfaction, great insurance companies will not only ensure that a customer is fully aware of what he is buying (good sales processes) but also ensure that avoidable customers are prevented from entering the pool by properly selecting customers (good underwriting processes). In fact, the more efficient the processes of underwriting the better are the customer satisfaction and claims settlement ratios of the company.
There are many reasons why an insurance company will not pay claims. Some of the important ones are outlined below:Fraud:
The chief reason for non-payment of claims is when the insurance company suspects fraud. Some policyholders insure themselves or their assets hoping to deceive the insurance company. Fraud can take many forms: over insurance, non-declaration of crucial information at the time of filling out the proposal form, or collusion with third party entities.
Fraud detection is time consuming and requires skill and intelligence. The not-so-great insurers are more susceptible to fraud, resulting in greater claims rejection ratios. Smart insurers use computer algorithms, customer behaviour patterns, past claim analyses and other methods to stay ahead of the fraudsters. Contractual Reasons:
Customers sometimes claim for events that are not covered. A home insurance policy will not cover the market value of the house in case of damage but only the cost of reconstructing the house. A policyholder will be disappointed when he attempts to claim if he is not made aware of this fact at the time of buying the policy. Similarly, consider a Critical Illness policy that provides for amounts if the client suffers from cancer, heart disease and kidney failure. Unless these diseases are involved, the insurance company will not pay and therefore if a customer attempts to claim for a liver transplant, the claim will be rejected.
Smart insurers ensure that their sales personnel are well trained, and will take pains to provide correct information to their customers thus preventing future customer dissatisfaction. Misstatement:
Sometimes the proposer may declare incorrect information in the proposal form. There may not be an intention to deceive the insurance company; however the information may be such that it was used by the insurance company to grant the policy. Consider a person who lives and works in Afghanistan and comes to visit his family in India. He buys a life insurance policy and omits to mention that he actually works in Afghanistan. If the fact of his living and working in Afghanistan was known to the insurer, the insurer would have declined his application, because he represented an unacceptable risk to the insurer. Regulations in India do not allow insurers to refuse claims due to misstatement, two years after the inception of the policy.
While it is the responsibility of the client to reveal information truthfully, a good salesman will ensure that the client reveals all that is crucial to underwriting, again preventing future problems at the claims stage. Great companies have lesser instances of misstatement by their clients.Legal Reasons:
Insurers, especially life insurers are obliged to pay the correct legal heirs, and if there is a dispute in ownership, insurers may defer payment till time the ownership issues are sorted out.
There are two ratios that are of utmost importance to a customer when buying an insurance policy:Percentage of Claims Refused:
This is a ratio, called the 'Repudiation Ratio' of the number of claims refused (or repudiated in insurance jargon) to the total number of claims received by the insurer. It is ok to consider an insurer that rejects up to 5% of claims. Any insurer that rejects more than 10% of claims is probably best avoided, irrespective of the price of the product. Repudiation ratios are relevant in life insurance policies.Percentage of Claims Settled within 30 days:
This ratio defines how efficient the company is in settling claims. It is obvious that the greater the percentage of claims settled within 30 days (of the total claims settled), the better is the insurance company’s claims operation. A ratio greater than 80% is a good reference point for you to select a company.
All insurance is a simple proposition. And buying is now simpler with the advent of online comparison capabilities. The most critical step is to choose a product that fits your need. Price becomes an important parameter post this decision. However look at price in conjunction with the claims settlement ratios of the company because an insurance policy from a company that will look to avoid paying a claim or will not pay on time is worse than having no insurance policy.