Have you ever wondered why health insurers in India keep their claims data a closely guarded secret, while life insurers advertise it? Life insurers prominently display their claims settlement ratios of 98% or 99%, but health insurance pitches are full of emotional testimonials on how ‘timely’ payouts saved the life of a near-and-dear one.
There’s good reason for this coyness. When it comes to paying out claims, Indian health insurers fare poorly when compared to life insurers. In fact, a health insurer not settling a hospital bill or a reimbursement claim in full seems to be the norm rather than exception (Read this earlier article on the excuses they use to reject claims (https://primeinvestor.in/claim-rejection-four-excuses-health-insurers/) This is why, as we scale up our health insurance coverage in PrimeInvestor, we start with this article on how you can assess the claims record of an insurer.
Incurred Claims Ratio (ICR)
Before we get on to more useful ratios to assess claims performance, let’s start with one ratio that is quite widely available, but is of limited use to buyers – the Incurred Claims Ratio. While the Incurred Claims Ratio for Indian health insurers is captured in the IRDA annual report and various other online forums, it is a measure that is more useful to shareholders in a health insurance companies rather than policyholders.
Incurred Claims Ratio simply captures the value of net claims paid by the insurance company in a specific period, as a proportion of the net premiums it earned. ICR crudely measures whether an insurance company is earning enough by way of premiums to cover its payouts arising from claims made on it by its policyholders. Lower the ratio, the better it is for the insurance company and its shareholders. After all, a company which consistently pays out more claims than the premiums it charges must be under-estimating the risk it is taking on. ICR however, does not help a person seeking an insurance plan know whether the company is good at settling claims.
Claims Settlement Ratio (CSR)
The most important measure of whether a health insurance company really walks the talk – the claims settlement ratio or CSR is the total number of claims settled by an insurer in a particular period, divided by the total claims that it had under processing. To arrive at the denominator, the number of claims outstanding at the beginning of the year is added to all the claims received through the year. If an insurer has a CSR of 80% for FY21, it means that the company paid 8 out of 10 claims that were filed with it. CSR helps you assess which insurer has a higher likelihood of paying your claim, should you file it.
While data for FY21 is not yet out, here’s how health insurers under different categories compared on CSR for the last two years.
The CSR data shows that:
- On an average, Indian health insurers settled 81-82% of their outstanding claims. The ratio is nowhere close to the 95% plus settlement by life insurers
- Public sector insurers have a better claims record (CSR of 87%) than their private sector rivals. But within PSUs, United India at 78% is a laggard while Oriental Insurance with 93% tops.
- Standalone health insurers have a better claims record than general insurers who also offer health insurance as one of their products. The average CSR for standalone health insurers was 84% with Care Health (formerly Religare) having the best record at 95% (even beating PSUs) while Aditya Birla Health was the laggard with 71%.
- Among general insurers, surprisingly, larger companies that obviously handle larger volumes of claims had a better claims record than their smaller peers. Among large players, IFFCO Tokio had the best CSR by number (96%) while SBI General had the lowest (66%).
- New-age digital insurers offering innovative policies with paperless processing such as Go Digit and Acko fare poorly on claims settlement, with their ratios at 63% and 74% respectively. Cholamandalam had the lowest CSRs for both years at 50-56%.
Do note though the claims records presented above are based only on the number of claims filed with the insurer and not the value of those claims. An insurance company may settle a numerically large number of small claims, but may drag its feet on high-value claims. This makes it important for you to also assess the settlement records of insurers by the value of claims (we are in the process of culling this data from the March 2021 individual disclosures).
Claims Settlement Efficiency Ratio (CER)
Many of us buy a health insurance plan only so that a sudden health emergency doesn’t put a big dent in our savings or land us in personal or credit card debt. If an insurer takes ages settling a hospital bill, this purpose isn’t going to be served. Hence the need to assess the Claims Efficiency Ratio – which measures the proportion of claims settled by an insurance company within 3 months. This is measured as claims settled within 3 months in all four quarters of the year divided by the total claims at the beginning of the year plus the claims received during the year.
Here’s what the data shows:
- While public sector insurers settle a high proportion of claims, they don’t do as well in turnaround times. On an average, public sector insurers settled just 77% of claims within 3 months compared to 83% for standalone health insurers and 79% for general insurers offering health plans. But New India and Oriental proved pretty good on both CSR and CER.
- Some companies with a high CSR slipped up on CER, suggesting that while you may expect your claim to be paid with them, it may take its own sweet time. National Insurance (CSR of 83% versus CER of 57% in FY20) and IFFCO Tokio (CSR of 96% versus CER of 81% in FY20) are instances.
- Bajaj Allianz, HDFC Ergo, Edelweiss, Magma and Navi General (earlier DHFL General) also fared well managing to settle most of their claims within 3 months.
- Standalone health insurers such as Religare, Max Bupa and Cigna fared well on CER as well as CSR.
- New-age insurers such as Acko and Go Digit had CERs of 70% and 63%, partly a function of their low CSR.
Claims Repudiation Ratio (CRR)
One of the most undesirable qualities that you’d watch out for in a health insurer would be the tendency to simply turn down your claim in full. The Claims Repudiation Ratio, or the ratio of claims rejected in a period to the total claims under process, captures this metric. A high CRR could be a sign that an insurance company applies its policy terms very strictly. Or it could be an indication that in its eagerness to add more policyholders and premiums, it sets low underwriting standards. It prefers to sign up dicey customers only to turn down their claims later.
Here’s what the CRR data tells us:
- On average, the industry rejected 8% of claims in FY20, but repudiation rates came down from 12% in FY19. Roughly 1 in every 12 claims got repudiated in FY20.
- Public sector insurers had relatively low repudiation rates averaging 5.5%, though United India proved the exception with over 11% - this goes with a low CSR and CER.
- Standalone health insurers had relatively high repudiation rates, with Aditya Birla, Cigna and Star Health rejecting 19%, 13% and 15% of claims in FY20.
- Among private insurers, Bajaj Allianz and HDFC Ergo which scored high on CER also fared well on repudiation rates, rejecting only 2-3% of claims.
- At the other extreme, Tata AIG (18%), ICICI Lombard (10%), SBI General, Future Generali and Bharti Axa all featured repudiation rates of 9% plus, all suggestive of higher probability of your claims getting rejected with these companies. It’s also hard to ignore companies with sky-high rejection rates in FY19 – SBI General, IFFCO Tokio, Universal Sompo and Kotak Mahindra.
- Many small private sector insurers such as Go Digit (0.83%), Edelweiss (1.6%), Magma (1.7%) had very low repudiation rates. But then, as some featured high CRRs in FY19 (Go Digit) it may be better to wait and watch on this score.
We think that the above findings, along with the Claims Settlement Ratios by value (which we’ll be able to compile once FY21 disclosures are out), can be a valuable input into choosing health insurance plans that deliver the most bang for your buck.
Data Inputs from Bipin Ramachandran