In its 8th edition, the report drew attention from a cross-section of society. Several newspapers analysed and cited it, and a member of parliament brought it to the attention of the finance minister. There have been differing views on how to interpret the report. However, it establishes the larger point – that insurers need to step up their game on claims. Insurers require nudging to include greater detail in their public disclosures, which aid public discussions and help to hold them accountable.
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Consider the fact that the overall claims-paid ratio of the four public general insurers slipped from 80-90% in 2022, to 40-60% in 2023. This coincided with a massive drop in the solvency ratio for three of them. Two of them even went into negative territory in terms of solvency.
Was the drop in the claims-paid ratio driven by these insurers’ ability to pay? We won’t know, unless there is a much greater level of scrutiny. As an industry insider, I can tell you that it is not uncommon for insurers to find reasons to delay, deduct and deny claims. Some time ago, a standalone health insurer suddenly started rejecting all health insurance claims that were outside its cashless network to manage its losses. Despite a hue and cry, the insurer went unpunished, and policyholders got little respite.
More details, please
As you navigate various lines of the insurance business, you find more unanswered questions. Take the fire business, for instance. This generally consists of losses due to a fire or natural catastrophes such as floods and earthquakes. The principal buyers of this insurance are commercial establishments, with some contribution from homeowners. Now, the highest proportion of claims settled by number was around 69%.
The broad reasons for rejections should be published. If the claim was denied because of exclusions, does the buyer need to expand his policy coverage? If the low ratio is low due to lack of awareness, do we need to do a better job of educating small and medium businesses about policy terms?
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An even more startling ratio is the claims settled by amount. For the insurer with highest claims settled by volume, the proportion of claims settled by value is around 31%. The claims settled by value for the four public-sector insurers ranges from 16-25%. If more than 75% of claims reported are deducted or denied, is it not bound to create frustration among policyholders?
Do note that for the year in question, insurers had come together to prescribe a minimum price for fire insurance. This would have given them a cushion for profitability. If the claims paid were low despite a lack of aggressive price-based competition, would the ratio be even lower in a free-pricing environment?
Policy prescription
Insurers may not deserve all the blame for such a low settlement ratio. However, this could aid policymaking. Take health insurance, for instance. The ultimate beneficiary of a health insurance claim is the hospital that raises the medical bill. Over the past few years, medical inflation has been much higher than general inflation. Apart from actual increases in the cost of treatment, this inflation encapsulates overbilling by several hospitals. There are numerous reported cases of over-prescription, over-diagnosis, over-charging, increased length of stay, etc.
Insurers have little control over hospitals, and some insurers end up invoking the ‘reasonable and customary clause’ to deduct claims. However, there is no public benchmark against which the insurer can objectively measure what is reasonable and customary. That’s why insurers’ decisions are seen as arbitrary. If such a reckoner was available for medical treatment and charges, it could substantially increase transparency.
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Today, a few insurers base their pricing on policyholder’s preferred place of treatment. If a tiered-cost structure was published by a government-backed authority, prices could be linked to it. All stakeholders – hospitals, patients and insurers – could then have a common reference point.
To increase accountability, several different cuts of claims data should be reported. We should know the claims performance by customer segment – i.e., retail and corporate. The claims performance should be available for each product, rather than just the company-level numbers. It would also be pertinent to include claims performance by channel of business.
Horses for courses
Insurers source business from agents, banks, brokers, motor dealers and so on. In the absence of data, insurers are seen as one unit. However, the same insurer behaves differently based on the business channel it interacts with. A captive channel may represent a claim differently than an independent one. As many channels of insurance sourcing mature, it would be helpful to bring in more distinction of their performance in terms of claims and grievances.
To fill this void, IBAI simultaneously released another report called ‘How brokers view insurers’. In a survey, the brokers rated the insurer on grievance handling and settlement of claims. Insurance brokers act as the policyholders’ representative. This makes them a natural route for increasing transparency. The claims report and brokers survey are critical policy advocacy tools. As an ecosystem, we should celebrate and support such initiatives.
Abhishek is co-founder of Securenow.in and director of the Insurance Brokers Association of India.
