ET highlights facts one needs to check about the insurance company and its services before buying a cover

The cheapest and best offers are always alluring. Be it a branded LED, gadgets, apparel or a holiday, we want the lowest possible rate. However, the theory can backfire if applied everywhere, especially in insurance. Buying the cheapest term cover, car insurance or even health insurance can be a great temptation but it could be of little or no use if there is a problem at the time of making a claim for the benefits.

Even if you have to pay few bucks more, it is important to identify the right insurer as much as the right product. In fact, a recent survey on customer awareness conducted by the insurance watchdog Insurance Regulatory and Development Authority (Irda) has pointed out that a customer should not merely choose a product because of its pricing or features. “In today’s context, though the customer has a variety of products to choose from, wise choices are possible only with requisite awareness. Besides, it is not enough for the customer to have knowledge only of the various policies available. It is possible that a customer has problems with a particular policy and should ideally be aware of organisations that look into grievances and make prompt payment of claims,” says Irda in the survey.

CLAIM SETTLEMENT RATIO

This is not a publicly declared figure by a company or the agents. You can access this data in Irda’s Annual Report for 2010-11, which was released in December 2011, and is on its website. Every year, the report lists claim settlement, repudiation (rejection) and pending ratios for all life insurers. “In case of life insurance, death claims are usually accepted, except in the most egregious of cases or if death occurs under suspicious circumstances within the first year or so of the policy. This ratio may, however, be more pertinent in case of general insurance companies with respect to health, motor or home insurance, which are more claim intensive in nature,” says Jayant Pai, CFP and vice-president, Parag Parikh Financial Advisory Services. But still this figure cannot be overlooked given the sensitivity quotient of the insurance. “An individual buys insurance to protect his/her family in unforeseen circumstances such as death of the policyholder. At that point of time, the family cannot undertake any stress related to claim settlement,” says Suresh Sadagopan, certified financial planner & founder Ladder 7 Financial Advisories. “Sadly, the settlement ratios for such policies are not publicised as much as those for life insurance companies,” Pai adds. Moreover, the claim settlement ratios of general insurers are usually over 100%, which can be misleading.

In such cases you should look at claims repudiation ratio which measures the amount of claims rejected as against the total number of claims. Also note the claims pending ratio which refers to the outstanding claims of the company. There are a number of new life and general insurance companies and the claim settlement history of such companies cannot be comparable to other life insurers which have been in the business for a long time. Hence, claim settlement ratio, although an important parameter, cannot be the sole criterion to decide on the company.

FINANCIAL STABILITY

Solvency margin is one of the strongest indicators of a company’s financial stability. This financial figure helps you understand the company’s ability to meet unforeseen contingencies such as claim settlements. It is an extra capital/provision an insurance company has to maintain to meet the claim requirements. This excess amount of asset which an insurance company has to maintain over its liabilities is a cushion. Hence, thicker the cushion, better it is from a company’s perspective. A terror attack or a major accident is a tremendous liability on the insurer but a higher solvency margin should cushion such extreme situations comfortably.

“Solvency margins are declared to Irda by every company. Insurance companies also share such data on public domain such as media or newspapers at times to reassure their customers,” says Niraj Jain, CEO and principal officer, Insurance Mall. Secondly, every company shares data related to fresh premium, renewals and the policies with Irda. “Based on this data, Irda ranks all the insurance companies —both on monthly and yearly basis. There is a break-up of data as per the different kinds of products, which can also act as a good indicator,” says Jain. This simply means the insurer has a constant inflow of funds in terms of new premium growth and renewals.

CUSTOMER SERVICE

Customer service is a critical aspect. However, many times we can only experience it once we sign up with a company. “That is why I believe that people choose a company after inquiring about the experience of their friends and acquaintances regarding the quality of customer service of various companies, and not go by the element of low premium alone. There are also certain other thumb rules...For instance, in case of a health insurance policy, it is better to choose a company which handles claims itself rather than outsourcing to a Third Party Administrator,” says Pai.

GRIEVANCE REDRESSAL

Here too, the experience of your acquaintances could be useful. One may also check out by reading third-party insurance related blogs and websites such as jagoinvestor.com, policymantra.com, insurance.blogs201.info where contributors share their experiences.

WILLINGNESS TO SHARE POLICY WORDINGS

The company/agent may not initiate to share the policy wordings. However, if you ask for a copy they should not deny the same. Often in a price war, you may miss out on the finer details of the policy. “If we have mentioned any medical family history, the policy may include a cooling-off period with respect to those medical conditions. These would be over and above the general terms and conditions related to pre-existing conditions of the health policy offered by the insurer. Similarly, in case of accident riders, different companies may follow different definitions which can again work against you in case of lack of clarity,” says a broker under conditions of anonymity. Hence read the policy wordings before signing the proposal form.

RELIABLE BROKERS OVER AGENTS

Approach a broker who deals with multiple companies. Agents who sell products of a single company may limit your choices. Get the necessary information from the broker, but cross check the details with some online portals before taking the final decision. Ease of paying one’s insurance premium (offline and online), stress on product simplicity rather than complexity and the company’s history of dealing with ‘Orphaned Policies’, so that you are not adversely affected in case your agent suddenly stops servicing you, can be some of the other key factors. Ensure the agent answers all your questions and you must read every word of the policy before you sign on the dotted line. “The customer must not only choose a product which is suitable, but also engage with a company in which the agents provide correct information,” said Irda in the survey.