Edelweiss Tokio Life trounces LIC, private sector players in honouring claims by benefit amount in FY18

India’s youngest life insurance company, Edelweiss Tokio Life Insurance has surpassed the whole sector, including the state-owned behemoth LIC of India, in honouring its claims in terms of benefit amount by a healthy margin, according to a recent report by the financial daily newspaper, Mint.

The Indo-Japanese joint venture company was the only life insurer that settled almost 98% of death claims by the settlement benefit amount, as against the industry average of 93%. In fact, it outperformed its private-sector peers by an average of nearly 1,000 basis points and LIC by over 330 basis points. Its benefit payout ratio is also better by around 150-250 bps when compared to Bharti AXA Life Insurance and Max Life Insurance, who came in second and third, respectively, as per the Insurance Regulatory and Development Authority of India’s annual report for 2017-18.

During the year ended March 2018, Edelweiss Tokio’s claim settlement ratio by benefit amount jumped from 86.5% in 2015-16 and less than 60% a few years earlier.

More often than not, insurance companies peddle their claim settlement ratio by the number of policies as a metric of their performance. This, however, can be misleading sometimes as insurers will settle a higher number of smaller claims to boost up the number, even as they may be rejecting larger settlements. When looking at the benefit paid per settlement, the companies with best settlement ratio by policy count – Max Life, LIC and Tata AIA – doled out 3.5 lakh to 4.7 lakh rupees on an average. In contrast, Edelweiss and Bharti AXA paid out 6.3 lakh rupees and 4.9 lakh rupees, respectively, per policy.

Looking at the percentage of claims settled by the benefit amount becomes all the more vital for buying a term plan as it indicates that the insurer settles claims on merit and regulations, rather than to shirk away from honouring its dues. This also shows that a company is focussed on catering pure protection plans, which have a larger cover, rather than lumping smaller policies to boost number.

“…a higher death claim settlement rate using this metric indicates that the insurer doesn’t discriminate between small- and big-value claims. This will happen if the sales practices are good and the policies are underwritten well at the time of sale,” said K.S. Gopalakrishnan, chief executive officer, RGA Reinsurance Company’s India business, while being quoted in the Mint news report.

In the insurance business, new premiums, or the first year amount collected from selling a policy, is often considered as the benchmark for growth. The industry’s commitment to honour its dues in a timely manner will lead to more and more customers putting its faith in a life insurer and increase insurance penetration in India. As term life insurance is generally considered as it is an easy-on-the-pocket form of securing the future, it is necessary that the industry should focus on improving their per policy benefits payout ratio.

As for the customer, rather than focusing on keeping the premium at lowest possible, they should look for an insurer with a squeaky clean customer-oriented claim settlement record. Basically, policy buyers should give higher credence to claim settlement ratio by benefit amount and average payout per policy, rather than the number of claims settled. With most term policies being, more or less, the same, they should pick the insurer with the best per policy benefits payout within their premium budget.

For the life insurers, with the uniform and stringent regulations for all 24 players in the market, the size of the claim – whether large or small – should not matter as long as it’s credible.