Invest in Credit Risk Mutual Fund or not?

LIC’s image pops up naturally whenever we think about insurance. It is the biggest player in the industry. Most first-time buyers prefer LIC policies. But should they? A well-informed and cautious person is the one who takes everything with a pinch of salt. Jo dikhta hai vo bikta hai. Undoubtedly. But do your homework well. Do you know that LIC does not feature even among the top-10 life insurers in claims settlement ratio in terms of a number of policies? Its settlement ratio stood at 96.69% for FY20. The insurance behemoth is right at the tenth spot in claims settlement ratio in value terms (93.45%).

The claim settlement ratio tells you how many claims the insurer settled against the total claims received in a financial year. The higher the settlement ratio, the better the claims record of the insurance company. A figure above 95% is considered safe.

LIC’s ratio at 96.69 in FY20 was lower than what it reported in FY19 at 97.79%. The proportion of repudiations increased to 0.81 per cent compared to that of 0.43% in the previous year.

For private players as a whole, the settlement ratio increased to 97.18% in FY20 compared to 96.64% during the previous year. The proportion of repudiations came down to 2.42 per cent compared to 2.83% the previous year.

Behemoth

LIC is the largest insurer in India with the highest absolute number of claims, as compared to other players.

“To be fair to the LIC, the total number of claims raised by LIC customers are about five times higher compared to any other private company. Hence the comparison may not be justified,” says Naval Goel, CEO, PolicyX.com.

LIC received claims from 7,58,916 policies in FY20, out of which 7,33,809 were settled. The claims value stood at Rs 13,694.34 crore, out of which Rs 12,797.85 crore was paid in FY20.

Pending claims

Another key metric that deserves attention is the duration of pending claims. While pending claims for less than three months were higher for private insurers ( 81.5%) compared to LIC (53.5%), it was much higher for LIC during the 3-6 months period. For LIC it was at 46.5% compared to 10% for private players. In simpler words, LIC is delaying the claims settlement by up to six months for about 46.5% claims submission.

Life insurance policies are a long-term commitment. Check out products from all insurers and make an informed decision based on coverage, claims records, among other factors.

“Customers look at Claim Settlement Ratio largely as a quick rule of thumb to understand whether a private insurer is not rejecting many claims. In my view, in the case of LIC, customers have immense trust and hence don’t worry about the claim settlement ratio. Based on my interaction with customers I have realised for a certain set of customers the brand itself invokes immense trust. It’s almost a no-brainer buying from LIC for such a segment, despite the high premiums or low claim settlement ratio,” says Mahavir Chopra, founder, Beshak.org.