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Claims Management in Life Insurance

The field of insurance has taken a giant leap at the threshold of
twentieth century. Insurance have become an integral part of life of man
all over the globe. The proverb ‘Need is the mother of invention’ is
proving equally correct in case of insurance Insurance have already had a
considerable impact on many aspects of our society.Claims management
is another important aspect on insurance. It is complex in nature that is
true but it is a driving force to plant confidence in the hearts of people.

Claims Management is one of the most challenging business

processes in the insurance industry. With the number of stakeholders
involved, the dependencies and the logistics, there is a need is to
eliminate manual interventions. For many organizations, claim
management and administration is viewed solely as a service operation.
Claim management is expected to run the claim process efficiently and
keep expenses low, but little attention is given to leveraging high-impact
opportunities afforded through effective data management. In fact, the
data captured in the claim process, which all too often are underutilized,
are rich in valuable information for those who know how to extract and
analyze it.

Claims management is an expert system which generates the rules

and regulations for the assessment of general damages using the key
information contained in medical reports, surveyor report, loss assessor’s
reports, claimant’s petition and the procedures or conditions and
warrenties contained in the policy document. The claims management
regulates the payment of general damages and also payment of the loss of
future earnings.
This project is just a gist about how the insurance companies settle
the claims, the procedure that is followed, the intermediaries that are
involved in the process and so on. This project throws light on various
aspects on claims management and the problems faced by them.

Definition of Insurance:
Insurance in its basic
form is defined
as “A contract between
Claims Management two parties whereby
in Life Insurance
one party called
insurer undertakes in
exchange for a fixed
Introduction to Insurance in India sum called premiums,
to pay the other party
called insured a fixed
The insurance sector in India has come a full circle from being an
amount of money on
open competitive market to nationalisation and theback to a liberalised
happening of a
market again. Tracing the developments in the Indian
certain event." sector
reveals the 360-degree turn witnessed over a period of almost two
Today Insurance Companies in India have grown manifold. The
insurance sector in India has shown immense growth potential. Even
today a giant share of Indian population nearly 80% is not under life
insurance coverage, let alone health and non-life insurance policies. This
clearly indicates the potential for insurance companies to grow their
market in India.
In simple terms it is a contract between the person who buys
Insurance and an Insurance company who sold the Policy. By entering
into contract the Insurance company agrees to pay the Policy holder or
his family members a predetermined sum of money in case of any
unfortunate event for a predetermined fixed sum payable which is in
normal term called Insurance Premiums.
Insurance is basically a protection against a financial loss which
can arise on the happening of an unexpected event. Insurance companies
collect premiums to provide for this protection. By paying a very small
sum of money a person can safeguard himself and his family financially
from an unfortunate event.

Brief history of the Insurance sector

The business of life insurance in India in its existing form started in

India in the year 1818 with the establishment of the Oriental Life
Insurance Company in Calcutta.

Claims Management in Life Insurance

Some of the important milestones in the life insurance business in India

➢ 1912: The Indian Life Assurance Companies Act enacted as the
first statute to regulate the life insurance business.
➢ 1928: The Indian Insurance Companies Act enacted to enable the
government to collect statistical information about both life and
non-life insurance businesses.
➢ 1938: Earlier legislation consolidated and amended to by the
Insurance Act with the objective of protecting the interests of the
insuring public.
➢ 1956: 245 Indian and foreign insurers and provident societies taken
over by the central government and nationalised. LIC formed by an
Act of Parliament, viz. LIC Act, 1956, with a capital contribution
of Rs. 5 crore from the Government of India.
The General insurance business in India, on the other hand, can trace
its roots to the Triton Insurance Company Ltd., the first general insurance
company established in the year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in
India are:
➢ 1907: The Indian Mercantile Insurance Ltd. set up, the first
company to transact all classes of general insurance business.
➢ 1957: General Insurance Council, a wing of the Insurance
Association of India, frames a code of conduct for ensuring fair
conduct and sound business practices.
➢ 1968: The Insurance Act amended to regulate investments and set
minimum solvency margins and the Tariff Advisory Committee set
➢ 1972: The General Insurance Business (Nationalisation) Act, 1972
nationalised the general insurance business in India with effect
from 1st January 1973.
➢ 107 insurers amalgamated and grouped into four companies viz.
the National Insurance Company Ltd., the New India Assurance
Company Ltd., the Oriental Insurance Company Ltd. and the
United India Insurance Company Ltd. GIC incorporated as a

Claims Management in Life Insurance

In 1993, Malhotra Committee headed by former Finance

Secretary and RBI Governor R.N. Malhotra was formed to evaluate
the Indian insurance industry and recommend its future direction.The
Malhotra committee was set up with the objective of complementing
the reforms initiated in the financial sector. The reforms were aimed at
"creating a more efficient and competitive financial system suitable
for the requirements of the economy keeping in mind the structural
changes currently underway and recognizing that insurance is an
important part of the overall financial system where it was necessary
to address the need for similar reforms.
Thereafter many changes have taken place in the insurance sector.
Insurance sector in India was liberalized in March 2000 with the
passage of the Insurance Regulatory and Development Authority
(IRDA) Bill, lifting all entry restrictions for private players and
allowing foreign players to enter the market with some limits on direct
foreign ownership. There is a 26% equity cap for foreign partners in
an insurance company. There is a proposal to increase this limit to
49%. The opening up of the insurance sector has led to rapid growth
of the sector. Presently, there are 16 life insurance companies and 15
non-life insurance companies in the market. The potential for growth
of insurance industry in India is immense as nearly 80% of Indian
population is without life insurance cover while health insurance and
non-life insurance continues to be well below international standards.
Furthermore, over the medium and long term, India’s insurance
market will continue to experience major changes as its operating
environment increasingly deregulates. On the one hand, a mix of new
products, new delivery systems and a greater awareness of risk will
generate growth. On the other hand, competition will remain intense
as private sector insurers and those about to enter India seek to win
market share from the more established public sector entities.

Introduction to Life Insurance

Human life is subject to risks of death and disability due to natural and
accidental causes. When human life is lost or a person is disabled

Claims Management in Life Insurance

permanently or temporarily, there is a loss of income to the household.

The family is put to hardship. Sometimes, survival itself is at stake for the
dependants. Risks are unpredictable. Death/disability may occur when
one least expects it. An individual can protect himself or herself against
such contingencies through life insurance.
Though Human life cannot be valued, a monetary sum could be
determined which is based on loss of income in future years. Hence in
life insurance, the Sum Assured (or the amount guaranteed to be paid in
the event of a loss) is by way of a ‘benefit’ in the case of life insurance.
It is the uncertainty that is risk, which gives rise to the necessity for
some form of protection against the financial loss arising from death.
Insurance substitutes this uncertainty by certainty. The primary purpose
of life insurance is the protection of the family. Insurance in its various
forms protects against such misfortunes by having the losses of the
unfortunate few paid by the contribution of the many that are exposed to
the same risk. This is the essence of insurance –the sharing of losses and
substitution of certainty for uncertainty.

There are a variety of life insurance products to suit to the needs of

various categories of people—children, youth, women, middle-aged
persons, old people; and also rural people,etc. Life insurance products
could be purchased from registered life insurers notified by the IRDA.
Insurers appoint insurance agents to sell their products.Public who are
interested to buy life insurance products should receive proper advice
from insurance agents/insurer so that a right product could be chosen to
suit particular financial needs.

Claims in Insurance

An insurance claim is the actual application for benefits provided

by an insurance company. Policy holders must first file an insurance
claim before any money can be disbursed to the hospital or repair shop or
other contracted service. The insurance company may or may not approve
the claim, based on their own assessment of the circumstances.
Individuals who take out home, life, health, or automobile insurance
policies must maintain regular payments called premiums to the insurers.

Claims Management in Life Insurance

Most of the time these premiums are used to settle another person's
insurance claim or to build up the available assets of the insurance
When claims are filed, the insured has to observe the settled rules
and procedures and the insurer has also to reciprocate in a similar manner
by undertaking appropriate steps for speedy disposal of claims. It is true
that claims settlement is complex in nature, but it is the driving force to
plant confidence in the hearts of people, in general and beneficiaries in
specific. Insurance claim is a right of insured under a contract of
insurance. Insurance contract is a contract by which one party called the
insurer promises to save the other party, the insured on payment of
consideration known as the premium. The insurer promises to save the
insured are nominees/assignees of the insured on happening of event or
risk insured. Disputes crop up in the payment of claim when the insurer
and the insured understand the process of claims payment in a different
way. Claims settlement is an integral part of the insurance business which
is a service industry and its growth is interwoven with the people, the
customers and consumers of service. It is inevitable for the insurance
company to protect and guard the interests of the policyholders. An
insurance claim is the only way to officially apply for benefits under an
insurance policy, but until the insurance company has assessed the
situation it will remain only a claim, not a pay-out.

Claims Management
Many insurers have recognized the need to improve the efficiency
of their claims management process. They have streamlined processes,
eliminated paper-based forms and redistributed work to match the
demands to skills. The objective of their efforts is to lower costs, while
also increasing overall throughput. Efficiency improvements make tasks
quicker and less costly to execute. However, to realize even greater
improvements in the claims handling process, insurers must also focus on
the effectiveness of their claims decisions.

Claims Management in Life Insurance

Claims handling costs typically represent 10% to 15% of net

earned premium; in contrast, claims payouts represent 40% to 65%.
Insurers that expand their focus to include effective as well as efficient
claims processing will find a far larger pool of savings opportunities.
Technology can play a significant role by providing integrated channels
for communication and collaboration. This would help the insurance
company increase employee productivity by reducing cycle time and
defect rate and also increase employee participation and compliance.
Claims Processing sometimes involves collating and sharing large
amounts of information among multiple parties involved in a claim, from
body shops to adjusters to investigators to lawyers and doctors to
claimants and regulators. And it involves the knowledge of experienced
adjusters to determine the fair and appropriate outcome of a claim. In
fact, losses and loss expenses absorb 80% of premium collected by
Service representatives and claims adjusters need to access data
from multiple sources when processing or assessing a claim, which
delays settlement time and increases costs. Manual steps reduce
transparency of the claims process and raise the risk of fraud,
manipulation or simply human error. Customer retention is also a
challenge – experts say that 75 percent of customers leave their insurer
due to claims issues.

System of claims management

Basis of claims management:
Claims management means and includes all the managerial
decisions and processes concerning the settlement and payment of claims
in accordance with the terms of insurance contract. It includes carrying
out the entire claims process with a particular emphasis on monitoring
and lowering the claims costs. The important elements of claims
management are claims preparation, claims philosophy, claims processing
and claims settlement.
The claims philosophy is defined as procedure or specified
approach to settle the claims. It contains the claims management

Claims Management in Life Insurance

principles and also claims handling methods and procedures. The claims
philosophy includes the preparation of guidelines regarding the receipt of
claims from the insurers or claimants, analysis of the claims,
consideration of the possible decision on the particular issues and
disputes, evaluating the impact of the claims cost and expenses, relation
of claims to the consumer satisfaction, monitoring the claim payment and
improving the efficiency of the claims settlement and payment systems
and avoiding unnecessary disputes of claims.
The claims process includes the basic claims procedure and
handling of claims. The handling of claims includes the monitoring of
situation or events, which cause the loss to the insured subject matter and
give a cause to the insured to make a claim. The claims process contains
two fold procedures to be followed by the insurer and insured. From the
point of view of the insured, it includes the suffering of loss or the
damage, understanding and identifying the cause of action, information or
giving notice of claim or loss to the insurer, providing sufficient proof of
loss to the insurer or his agent or the loss assessor and surveyors. The
insurer, on the receipt of the claim from the insured, has to take certain
immediate precautions such as verifying the claims, reviewing the claim
application, respond to the claimant, carry out claims investigation,
claims negotiation, claim settlement and claim payment.

Stages in claims system:

The claims handling is the integrated part of the claims management

and executes the decisions made by the claims management machinery of
an insurance company. Though claims management and claims handling
are generally the same externally, they are different in nature.

• Claims management:

Claims Management in Life Insurance

Claims management is a managerial function in which the

insurer has a definite role to play in analysis of data, processing of
application, decision-making, budget planning, and business control
and fund management. It is a subjective concept. In claims
management, the attention is on making principles and guidelines for
smooth and profitable settlement of claims in the hands of the insurer.
Claims management includes the entire process of claims
handling and claims payment. This includes review of the claims
performance, monitoring of claims expenses’, legal costs, settlement
costs, compromises and planning for future payments and avoiding the
delay and disputes in payment of claims. It is a control system that has
an important place in the claims management. It also includes risk
management techniques, loss assessment, and business forecasting
and planning.
• Claims handling:
Claims handling is the procedural way of processing a claims
application. Claims handling involves utilization of the laid down
principles as yardsticks and the measuring methods in settling the
issues before it occurs. Claims handling is a traditional form of
managing the claims settlements. It includes handling of various
stages of the insurance claims. It is functional in nature such as claims
review, investigation and understanding the negotiating process. It
does not include any managerial outlook such as risk management,
policy making and decision making.
Thus, it is concerned with the procedural methods and also
interpretations of the claims philosophy. Claims handlingmay change
from case to case depending on the merits of the claim, but it will not
drastically change every moment. It is a flexible as well as a rigid way
of handling the issues having interest of the insurer in mind. It is a
systematic way of receiving the claims and following other procedures
required for quicker and efficient payment of the claims. Every insurer
has a standardized way of claims handling which will improve quality

Claims Management in Life Insurance

and customer service. The insurer’s commitment to the service of the

customer is a part of the claims management.

Life Insurance Corporation of

The Life Insurance Corporation (LIC) was established about 44
years ago with a view to provide an insurance cover against various risks
in life. A monolith then, the corporation, enjoyed a monopoly status and
became synonymous with life insurance. Its main asset is its staff strength
of 1.24 lakh employees and 2,048 branches and over six lakh agency
LIC has hundred divisional offices and has established extensive
training facilities at all levels. At the apex, is the Management
Development Institute, seven Zonal Training Centers and 35 Sales
Training Centers. LIC of India is one of India’s leading financial
institutions, offering complete financial solutions that encompass every
sphere of life. From commercial banking to stock broking to mutual

Claims Management in Life Insurance

funds to life insurance to investment banking, the group caters to the

financials needs of individuals and corporate. The LIC has a net of over
Rs. 1,800 crore. With a presence in 82cities in India and it services a
customer base of over 20, 00,000.
At the industry level, along with the Government and the GIC, it
has helped establish the National Insurance Academy. It presently
transacts individual life insurance businesses, group insurance businesses,
social security schemes and pensions, grants housing loans through its
subsidiary; and markets savings and investment products through its
mutual fund. It pays off about Rs 6,000 crore annually to 5.6 million
It has been started with the objectives of spreading Life Insurance
widely and in particular to the rural areas, meet the various life insurance
needs of the community that would arise in the changing social and
economic environment.

Organizational Structure of LIC

The organization is the form having independent or co-ordinated

parts for unit action for the accomplishment of common objectives. As
such the organization relating to insurance business is a form having
different functional divisional units with the ultimate aim of providing
effective services to the customers of the insurance products. An effective
organization is essential to share information and effectively execute the
managerial decisions. The organizational structure differs for different
types of business. The organization structure is based on the objectives or
mission of the business organization. The organization should be
structured with an aim to coordinate, not only with internal managers or
groups, but also with the external world, the customers, authorities and
other persons directly or indirectly interested in it.
The insurance business is concerned with the functions of
marketing of insurance products and its related functions like premium
collections and premium fixings, accepting the insurance proposals,
issuing policy documents, maintain records relating t the policies issued
everyday in chronological order, and also payment of claims. The claims

Claims Management in Life Insurance

department is associated with the receipt of claims and arrangement of

claims investigations. After it is decided whether to make payment to the
assured or to defer it, the insurance company may seek guidance from the
panel of advocates. The insurance company needs to protect the company
from the claims litigations of the clients by defending the claims in the
courts and supervise other alternative dispute resolutions. Thus the
insurance organization is associated with the marketing of policies,
underwriting of policies, claims payment, claims defending and stff
matters. The delegation of duties to each unit with well-defined
limitations, responsibilities and decision making are all related to the
organizational structure and management.

Basic structure of LIC

Today, most of functions, nearly 90%, related to the marketing and

other related activities of the insurance consumers are dealt and handled
at the branch level. The branch office, depending upon its business, is
headed by a manager and each function of insurance business like
marketing, underwriting of policies, accounts, claims payments, staff and
administration matters are identified as departments of the branch office
with responsible officials such as Administration and Accounts Officers.
The managerial decisions are based on the information supplied by
the AAO, the functional head at root level. All the functions of claims
will be settled at the branch level. The AAO of life insurance business
will deal with maturity and death claims. If the branch is smaller, all the
types of claims will be dealt by one AAO and if the branch is bigger with
good number of claims, they will be settled by, separate officials. At
branch level, these officials have to maintain cordial relations and
establish a system of sharing information with the other departments,

Claims Management in Life Insurance

relating to the policy documents, payment of premium and using the staff
or the agents for the settlement of claims disputes. The branches maintain
records relating to the claims payment and claims rejections. They wiill
submit the reports to the Zonal Officer, who in turn will forward it to the
Head Office or Corporate Office.
The branches report to their respective divisional office. If any
branch gets a claim and there is a problem in identifying the correct
claimant among the claimants, or otherwise, a dispute of risk crops up,
which will be forwarded to the divisional office with its comments. The
divisional office after receiving the papers, verifies them, applies legal
knowledge and skills, or seeks advice from skilled persons and tries to
solve the problems. The divisional office is responsible to settle the
claims referred by the branch office and also report the same to the zonal
office, which in turn will consolidate the data and submit the same as
required by the statute or otherwise under any law to the government. The
government will put the same for the approval of the both the houses.
At the division office level, the claims department generally deals
with the claims, which are pending with the branches because of some
disputes, or some claims which are of high value. The investment
portfolio and establishment and maintenance of reserves for the purpose
of claims payment or otherwise required under the law is the important
function of the central office. Thus the organizational structure of the
insurance business is most flexible and decided, based on the above said

Claims Management Department

The claims department is one of the key departments in an
insurance company. The claims department has the following functions to
 To provide the customers of insurance and reinsurance companies
with high quality of service. This role gives a long-term edge to the
company and hence is referred to as the strategic role.
 To monitor the claims and see that whether the benefits of
insurance exceed the costs of claims. This role is referred to as the
cost-monitoring role of the claims department.
 To see that the expectations of the customers are met with regard to
speed, manner and efficiency of the service. This is called the
customer service role of the claims department.

Claims Management in Life Insurance

 To meet the standard of service, to keep up to the customers

expectations and still operate within the budget. This is the
managerial role of the claims department.
Both the quality of the service and cost of claims is the responsibility
of the claims department. The department has to look after the proper mix
of the two. The cost of claims must not exceed a given level in trying to
render a very good service to the customer. So the claims department
should work with due diligence to balance the two parameters. The
estimation of future liabilities is just as important as control over the
claim payments. As the claims department is in direct touch with the
customer, it has to ensure the quality of service.
The claims department has the sole responsibility of managing claims.
Claims management by far is the most complex issue in an insurance
company. The people in the claim department should have good
interpersonal skills. If they are not able to irk in harmony the customers
will not receive quality service. There should be sufficient number of
people as managers so as to simplify job and proper human resource
systems in place so that such persons are recruited whose philosophy
goes with the mission and vision of the organization. It has become
imperative for the claims department to provide quality service to the
customers so that the corporate goals are achieved. The claims
department, in effect, acts as an interface between the customer service
quality and insurance company’s objectives. It has to be given the proper
weight age and motivation so that the business as a whole functions well.

Types of claims

Understanding the requirements for various life insurance benefits

(claims) is important for the customers. The overriding condition on
claims is the payment of premiums i.e. claims are only payable if
premiums are paid up to date. There are various types of claims under life
policies. The most common claims include:

Claims Management in Life Insurance

The general requirements for each of these claims are briefly explained

Death Claims:

This is a claim paid when then the person insured dies. For a death claim
to be paid the following basic conditions must be fulfilled.

➢ The policy document, original death certificate, burial permit copy

of the ID of the deceased must be provided to the insurance

➢ A report from the doctor who treated the deceased must be

presented to the insurance company.

➢ Claim forms must be completed

➢ A report from the doctor who last treated the deceased person may
be required.

➢ A police abstract report may be required where death occurs

through an accident.

The documentation required for payment of death claims are easily

available and claimants need to immediately inform the insurance
company where problems are encountered in securing the documents.

Claims Management in Life Insurance

The documents are usually required so as to reduce on the possibility of

paying fraudulent claims or paying the wrong claimants. Many insurance
companies will frequently waive certain requirements under certain
special circumstances.

Maturity Claims:

A maturity claim is paid out mostly on endowment and education

insurance policies whose duration has expired. For example in an
insurance policy with duration of 15 years, the maturity value will be paid
on the 15th anniversary after affecting the policy. Payment of a maturity
claim is a straightforward affair where the customer returns the original
policy document and signs a discharge form. The claim cheque is usually
released in a period of about two weeks once all required conditions are

Partial Maturity Claims:

Most endowment and education policies provide for payment of

partial maturities after a given duration. The partial maturity is normally
paid on set dates in the policy document. A typical education policy of 10
years provides for payment of 20% of the sum insured after four years
and every year thereafter until the expiry of the policy. The life insurance
company usually prepares partial maturity cheques in an automated
manner and the customer does not have to claim. The cheque is either
sent directly to the customer or the nearest branch office for ease of

Claims Management in Life Insurance

Surrender Value Claims:

When a customer is unable to continue with the payment of

premiums due to unplanned events like retrenchment or dismissal he has
the option of encashing the policy to receive the surrender value so long
as the policy has been in force for more than 3 years. The procedure for
lodging this type of claim is very simple and is similar to the maturity
claim whereby the customer returns the policy document and signs a
discharge form. The claim cheque is then paid to the customer within two

Policy Loans:

This is strictly not a claim but a benefit given out by life companies
for life policies that have been in force for at least three years. To receive
a policy loan directly from a life company entails assigning the policy to
the life company and receiving a loan cheque. The insurance policy can
also be assigned to a bank and the loan is then granted by the banks and
the policy document utilized as security for the loan.

Claims Management in Life Insurance

Disability Claims:

This will arise in life policies where the customer purchases a

personal accident policy rider as an additional benefit. Disability claims
are payable subject to sufficient medical evidence being provided as
proof of disablement.

Guidelines for claims settlement by


Claims Management in Life Insurance

Proposal for insurance:

1) Except in cases of a marine insurance cover, where current market

practices do not insist on a written proposal form, in all cases, a
proposal for grant of a cover, either for life business or for general
business, must be evidenced by a written document. It is the duty
of an insurer to furnish to the insured free of charge, within 30 days
of the acceptance of a proposal, a copy of the proposal form.

2) Forms and documents used in the grant of cover may, depending

upon the circumstances of each case, be made available in
languages recognized under the Constitution of India.

3) In filling the form of proposal, the prospect is to be guided by the

provisions of Section 45 of the Act. Any proposal form seeking
information for grant of life cover may prominently state therein
the requirements of Section 45 of the Act.

4) Where a proposal form is not used, the insurer shall record the
information obtained orally or in writing, and confirm it within a
period of 15 days thereof with the proposer and incorporate the
information in its cover note or policy. The onus of proof shall rest
with the insurer in respect of any information not so recorded,
where the insurer claims that the proposer suppressed any material
information or provided misleading or false information on any
matter material to the grant of a cover.

5) Wherever the benefit of nomination is available to the proposer, in

terms of the Act or the conditions of policy, the insurer shall draw
the attention of the proposer to it and encourage the prospect to
avail the facility.

6) Proposals shall be processed by the insurer with speed and

efficiency and all decisions thereof shall be communicated by it in
writing within a reasonable period not exceeding 15 days from
receipt of proposals by the insurer.

Claims Management in Life Insurance

Matters to be stated in life insurance policy:

1. A life insurance policy shall clearly state:

a) the name of the plan governing the policy, its terms and
b) whether it is participating in profits or not;
c) the basis of participation in profits such as cash bonus,
deferred bonus, simple or compound reversionary bonus;
d) the benefits payable and the contingencies upon which these
are payable and the other terms and conditions of the
insurance contract;
e) the details of the riders attaching to the main policy;
f) the date of commencement of risk and the date of maturity
or date(s) on which the benefits are payable;
g) the premiums payable, periodicity of payment, grace period
allowed for payment of the premium, the date the last
instalment of premium, the implication of discontinuing the
payment of an instalment(s) of premium and also the
provisions of a guaranteed surrender value.
h) the age at entry and whether the same has been admitted;
i) the policy requirements for (a) conversion of the policy into
paid up policy, (b) surrender (c) non-forfeiture and (d)
revival of lapsed policies;
j) contingencies excluded from the scope of the cover, both in
respect of the main policy and the riders;
k) the provisions for nomination, assignment, and loans on
security of the policy and a statement that the rate of interest
payable on such loan amount shall be as prescribed by the
insurer at the time of taking the loan;
l) any special clauses or conditions, such as, first pregnancy
clause, suicide clause etc.; and
m) the address of the insurer to which all communications in
respect of the policy shall be sent.
n) the documents that are normally required to be submitted by
a claimant in support of a claim under the policy.

Claims Management in Life Insurance

2. While acting under regulation 6(1) in forwarding the policy to the

insured, the insurer shall inform by the letter forwarding the policy
that he has a period of 15 days from the date of receipt of the
policy document to review the terms and conditions of the policy
and where the insured disagrees to any of those terms or
conditions, he has the option to return the policy stating the reasons
for his objection, when he shall be entitled to a refund of the
premium paid, subject only to a deduction of a proportionate risk
premium for the period on cover and the expenses incurred by the
insurer on medical examination of the proposer and
stamp duty charges.

3. In respect of a unit linked policy, in addition to the deductions

under sub-regulation (2) of this regulation, the insurer shall also be
entitled to repurchase the unit at the price of the units on the date of

4. In respect of a cover, where premium charged is dependent on age,

the insurer shall ensure that the age is admitted as far as possible
before issuance of the policy document. In case where age has not
been admitted by the time the policy is issued, the insurer shall
make efforts to obtain proof of age and admit the same as soon as

Claims Management in Life Insurance

Claims procedure in respect of a life insurance policy:

1) A life insurance policy shall state the primary documents which are
normally required to be submitted by a claimant in support of a
2) A life insurance company, upon receiving a claim, shall process the
claim without delay. Any queries or requirement of additional
documents, to the extent possible, shall be raised all at once and
not in a piece-meal manner, within a period of 15 days of the
receipt of the claim.
3) A claim under a life policy shall be paid or be disputed giving all
the relevant reasons, within 30 days from the date of receipt of all
relevant papers and clarifications required. However, where the
circumstances of a claim warrant an investigation in the opinion of
the insurance company, it shall initiate and complete such
investigation at the earliest. Where in the opinion of the insurance
company the circumstances of a claim warrant an investigation, it
shall initiate and complete such investigation at the earliest, in any
case not later than 6 months from the time of lodging the claim.
4) Subject to the provisions of section 47 of the Act, where a claim is
ready for payment but the payment cannot be made due to any
reasons of a proper identification of the payee, the life insurer shall
hold the amount for the benefit of the payee and such an amount
shall earn interest at the rate applicable to a savings bank account

Claims Management in Life Insurance

with a scheduled bank (effective from 30 days following the

submission of all papers and information).
5) Where there is a delay on the part of the insurer in processing a
claim for a reason other than the one covered by sub-regulation (4),
the life insurance company shall pay interest on the claim amount
at a rate which is 2% above the bank rate prevalent at the
beginning of the financial year in which the claim is reviewed by

Procedure for settlement of claims

Settlement of maturity claims:

Under LIC, claims can arise on maturity of policy of the

policyholder. The processing of claims by maturity is normally
undertaken by Divisional Office of LIC about two months before the date
of maturity. . The LIC sends intimation before the maturity date. If the
notice of maturity is not received and the date of maturity is known to the
policyholder, then the policyholder can take the necessary steps to get the
due Maturity amount. The Corporation sends Maturity Intimation along
with the discharge forms to the policyholder informing him about the
requirements for the settlement of claim.

Claims Management in Life Insurance

1) In case the maturity intimation is not received by the policyholder

till around 2 months before the date on which the policy matures,
he should contact the concerned Divisional Office and obtain a
copy of the maturity intimation.

2) Policy Document (if not in the custody of LIC as security for loan):
On receipt of the maturity intimation, the policyholder
should send the original policy document along with the last
receipt of insurance premium paid. The policy document needs to
be submitted in original unless it is in custody of LIC as security
for loan.

3) Age proof document (if age has not been admitted earlier):
The policyholder should also submit his age proof to the
Corporation in case it has not already been submitted. In case, the
policyholder has already submitted his age proof to LIC, the form
of Discharge (Form No. 3825) to be executed by the policyholder,
is also sent along with the Maturity Intimation.

4) L.I.C. accepts following documents as valid age proofs:

a. Horoscope of the assured
b. Certificate relating to the baptism ceremony among Christians
c. Birth certificate from the Municipal Corporation
d. High School Certificate
e. Service book.
5) Discharge Form No. 3825 duly stamped & signed, attested by a
The form of Discharge (Form 3825) should then be properly
filled, signed and sent to the Office of LIC from which it was
issued. The signature must be on a revenue stamp and must be
attested by a witness.

6) Assignment / Reassignment Deed, if any:

In case the policy or any Deed of Assignment or Re-
assignment is lost by the policyholder, he has to submit an
indemnity bond along with a reliable surety of sound financial

Claims Management in Life Insurance

standing acceptable to LIC. The indemnity bond has to be in a

particular format (Form 3815). In such a case the claim is settled in
the absence of the policy document.

7) Existence certificates in case of children’s Deferred Assurance &

Pure Endowment Policies.

8) In due course, LIC sends a cheque to the policyholder for the

money due to him as per the terms of the policy.

LIC upon the receipt of the claim form will act in the following manner:

➢ LIC will send an acknowledgement to the effect that the claim

form has been received and the aforesaid document will also state
that the insurer is in the process of checking all the necessary items
and will get back to the claimant shortly.

➢ Then the insurer will ask for necessary documents that are required
for settlement of claims. The claimant has to provide all the
necessary documents that are being asked by the insurer.

➢ After verification, the insurer arrives at the final amount that has to
be paid to the claimant and then prepares a cheque or such mode of
payment as has been agreed upon in the policy or between the
claimant and the insured.

Settlement of Death claims:

Claims Management in Life Insurance

The death claim amount is payable in case of policies where

premiums are paid up-to-date or where the death occurs within the days
of grace. The following is the process of settlement of claims in case of
death claims:
1) Intimation of death:
The first requirement of the Corporation in the case of death claim is
that an "intimation of death"’ should be sent to the branch office of the
LIC from where the policy was issued.
The intimation needs to be sent by the person who is entitled to get the
proceeds of the policy. It may be:
i. the nominee or
ii. the assignee of the policy or
iii. the deceased policyholder’s nearest relative.
The letter of intimation of death should contain the following
i. name of the life assured
ii. a statement that the life assured is dead;
iii. the date of death;
iv. the cause of death;
v. the place of death; and
vi. policy number / s
vii.claimant’s relationship with the assured or his status (nominee,
assignee, etc.).
Soon after the receipt of the intimation of the death, the branch office
sends the necessary claim forms along with instructions regarding the
procedure to be followed by the claimant.
2) Submission of Proof of Death
The proof of death required to be submitted is a certificate by
Municipal Death Registry or by a Public Record Office which maintains
the records of births and deaths in the locality. Besides this some other
Claims Management in Life Insurance

statements or certificates are also required to be given in the prescribed

Claim forms:
• Statement from the doctor who attended the deceased
policyholder’s last illness.
• Certificate of treatment in the hospital where the policyholder died
or was treated by the hospital authorities.
• Certificate of burial or cremation to be given by an independent
person who attended the funeral and has seen the dead body.
• Certificate from the employer if the policyholder was in
employment at the time of death.

3) Submission of Proof of Age

The claimant should submit age proof of the policyholder to LIC in
case it has not already been submitted.
L.I.C. accepts following documents as valid age proofs:
(i) Horoscope of the assured
(ii) Certificate relating to the baptism ceremony among Christians
(iii) Birth certificate from the Municipal Corporation
(iv) High School Certificate
(v) Service book.

4) Certificate of Ownership.
When the policy is validly assigned, or a nominee has been designated
in the policy, no further proof of title is necessary. In any other case, the
certificate of title is necessary. In such a case the corporation would
require legal evidence of title such as Succession Certificate or Letters of
Administration or Letters of Probate or a Will.
5) Payment and Discharge
After completing all the above formalities, the insurance company
issues a discharge form for completion, which is to be signed by the
person entitled to receive policy money. That is, it should be signed by:

Claims Management in Life Insurance

• the nominee, in case nomination was made under the policy;

• the assignee, in case the policy was validity and unconditionally
• the legal representative or successor.
In due course, LIC sends the cheque for the amount due to the person
entitled to receive the same.
6) Early death claims:
If death occurs in less than three years from the date of the policy,
following requirements must be complied with:
i. Policy Document
ii. Discharge Form 3801
iii. Assignment / Re-assignment Deed, if any
iv. Age Proof Document (if age has not been admitted earlier)
v. Certificate of treatment issued by the hospital authorities where the
deceased policyholder was treated last, on Claim Form ‘B1’ (F No.
vi. Certificate by the employer if the deceased was an employee, on
the Claim Form ‘E’ (F No. 3787 revised)
vii.Certificate of Death
viii.Legal Evidence of Title (if policy is not assigned / nominated)
ix. Claim Form ‘A’ (F No. 3783)
x. Statement from the Doctor who attended last the deceased
policyholder, on Claim Form ‘B’ (Form No. 3784 revised)
xi. Certificate of Identity and burial by a person who attended the
funeral on Claim Form ‘C’ (F No. 3785 revised)

7) Non early claims:

If death occurs exactly or after 3 years from the date of the policy the
following requirements must be complied with:
i. Policy Document
ii. Discharge Form 3801
iii. Legal Evidence of Title
iv. Death Certificate

Claims Management in Life Insurance

v. Claim Form No. 3783A

vi. Assignment / Re-assignment Deed, if any (if policy not assigned
vii.Age Proof Document (if age has not been admitted earlier)

8) Ex-gratia Settlement of Death Claims

Ex-gratia Settlement of Death Claims are not a right claim but on
grounds of humanity presently LIC is giving such claim amount for the
policies which are not in force but
• If Death occurred after the expiry of grace period of premium due
date then Full Sum Assured along with the bonus will be payable
as Ex-gratia settlement

• If Death occurred after three months but less than six months after
the expiry of first unpaid premium date half of the Sum Assured
without bonus will be paid as Ex-gratia
If the death occurred between six months and one year from the due date
of the first unpaid premium date, claim may be considered to the extent
of the proportionate notional paid-up value on the basis of actual
premium paid.

Important terms in claims

Claims Management in Life Insurance

Maturity claims

Beneficiaries in claims:

The claimant in life insurance policies at the time of payment of maturity

claims of life insurance policies can be the policyholder or the assignee to
whom the holder of the policy has transferred the policy. The persons
entitled to claim under these policies can be:

• The assured himself.

• The payee, whose name appears in the benefit schedule of the

policy as a party interested.

• The creditor who has been properly assigned and nominated to

receive the payment under the policy.

Amount payable:

The amount payable upon the maturity of the policy, i.e., non-happening
of the event is the sum assured plus profits and bonus that accrues with
the policy. The profits are paid on pro-rata basis, i.e., in the proportion of
the premium paid and declared are bonuses. The payment of profits is a
condition inserted as a clause in the policy itself and it becomes an

Claims Management in Life Insurance

obligation on the insurer to pay the amount of such profit as may be

accrued to the insured.

Dispute in payment of maturity claims:

The disputes arising in such cases are general and may be restricted to the
proof of age, if the age is not admitted at the time of issuing the policy
document and about the good title of the claimant on the policy. Incase of
the insurer shrugging off his liability to make the payment of profits
which are accrued to the insured upon maturity and in case the payment
of profit is as per the contract, the insurer has every right to move to the
court and to claim for such payment. The policy document and scheme of
the policy contains the details of the payment and the payment made
accordingly may not drag the parties into litigations.

Death claims


The claimants or the beneficiaries under the life insurance policies, paid
on the happening of the events which is death of the assured, are as

• The legal heirs of the policyholder.

• The nominees, assignees and transferees

Claims Management in Life Insurance

• The wife and children of the assured under the Married Women’s
property Act

• The creditor in whose name the policy has been endorsed

Amount payable:

Amounts that can be paid under a life insurance policy are as follows:

• The amount insured or the face value of the policy

• Bonus if declared by the company, which is recoverable as an

insurance amount.

• The share of profits in case of participation policy.

• Surrender value, where the policy lapses due to non-payment of the

premium or where the assured surrenders the policy, the insurance
company may pay a percentage of the premium paid according to
the rules of the company.

Claims Management in Life Insurance

Factors affecting the claims settlement

The factors that affect the claims settlement are as follows:

 The policy should be in force on the date of the event.

 The risk and cause of event should be covered by the policy.

 The cause of loss or the event should be directly related to the loss.
A remote cause has no place in the settlement.

 The loss should not have been caused with an intention to gain
from the situation.

 The preconditions or warranties have to be compiled with. When

conditions to be fulfilled before affecting the cover of the policy,
are not performed, the cover of insurance will not come into effect
even though the premium is paid and accepted by the insurance

 Presence of insurable interest, in case of the property insurances, at

least at the time of happening of event or loss sufferings. Without

Claims Management in Life Insurance

having the insurable interest in the subject matter, no person can

get benefit or compensation.

 The assured should suffer loss, actual or constructive, to get

compensation. The assured should riot make benefits or gains out
of the insurance contract as the insurance contract is of indemnity
in nature. It only makes good the loss suffered by the assured and
is not a source of gains.

 Sufficient documentary evidence of loss should be presented along

with the application form.

 Multiple claims and reciprocal claims will be settled as per the

terms of the contract of insurance.

 Right to appeal or file a petition with the tribunal or the courts

cannot be withdrawn. If the terms of the policy insist upon
arbitration, it is not the end of justice for the insurer or the assured.

The insured may opt for the following alternatives while settling the

 Pay the claims as reported by the surveyor or the claims made by

the insurer whichever is less.

Claims Management in Life Insurance

 Take help of the agent or some other persons and compromise or to

come to an agreement with the assured in case of a disputed claim.

 If the claim is rejected there may be litigation on the insurer. The

litigation will cost the insurer more, as the insurer has to pay the
interest for the amount due if he losses the litigation.

 Pay ex-gratia, if the claim is totally baseless and non-acceptable,

on humanitarian grounds and to avoid complications in future.

 Arrange to replace the asset either by repairing the same or by

purchasing a similar asset from the market.

 Repair the asset to provide the similar type of services as provided

before the happening of event.

Claims Management in Life Insurance

Delay in claims settlement

The time value for the settlement of a claim is of importance. All

claim papers have to be submitted within a limited period mentioned in
the policy document or otherwise stated in the Act. In some cases, the
death of a person or the accident of vehicle has to be intimated
immediately either orally or in person, either by the policyholder or the
claimant or by the representative of the claimant.

The time element is very important in the claims payment for the
following reasons:

 The delay in the claims settlement will have an adverse impact on

the goodwill and marketing of the insurance.

Claims Management in Life Insurance

 The cost of claims will increase with the extension of time.

 The insurer may be asked to pay the interest on the unpaid

insurance amount because of the delay. The court may direct the
insurer to pay the costs of the case to the assured, which results in
mounting up of costs.

 The delay in payment may lead to litigation which is expensive.

 Unproductive use of manpower to defend, expenses incurred and

waste of time on litigations will be an extra burden on the insurer.

 Litigations will affect on the productive areas of the business

particularly in the marketing of the insurance business.

 The delay also leads to the increasing number of cases with

consumer protection councils.

Thus the delay in the settlement of the claims will have an impact on the
present and future business of the insurance along with the cost burden.
As such it is essential to have quicker claim settlements.

Claims Management in Life Insurance

The delay in claims settlement may be due to the following reasons:

Late submission of claim form: The claim forms may be submitted

late because of the ignorance or lack of knowledge of the existence
of the insurance policies against the lives of the persons who face
the event or no information is given to the beneficiaries or no
nominations are made to the policy.

Innocence and illiteracy of the assured: The assured or the claimant

may fail to file the papers due to lack of knowledge, to file the
insurance claims within a certain period or of the claims procedure.

Not submitting the claims forms in full: If the claim forms are not
properly filled, they will fail to provide the required information to
settle the claims and as a result the claim settlement will be delayed
for want of information.

If sufficient proof or supporting documents are not submitted along

with the claim form to facilitate claim assessor to know the date of the
event or the cause of the event, claim settlement may be delayed.

 The insurer may not get the cooperation of the insured or the
claimant to finalize the claim or arrive at some compromise.

Claims Management in Life Insurance

 Destroying the evidences, with or without intention, that could

have otherwise facilitated the estimation of the loss payable under
the claim.

 Not providing information about the changes in the constitution of

the organization or the changed address of the insured or the
claimant or any other information required to make a claim

 The delay on the part of the insurer may be intentional or due to the
pressure of work.

 Lack of motivation, lack of knowledge of importance of the claims

settlement, lack of awareness among the staff of the organizations
or defective supervision or organizational structure.

The delay in submission of claims or settlements can be avoided by

making the assured aware of the facts and importance of the insurance
and procedure of claims. The insurers can take the help of the agent or
local staff to arrive at a compromise with the claimants when the cases
are of complex nature. The organization should be so designed to avoid
holding of papers at one or two places. The staff should be trained and the
importance of the claims management should be driven into their minds.
Use of latest technology to assess the losses and recruitment of able staff
will speed up claims settlement.

Claims Management in Life Insurance

Role of agents in claims settlement

Claims Management in Life Insurance

An agent is a primary source for procurement of insurance business

and as such his role is the corner stone for building a solid edifice of any
life insurance organization. To effect a good quality of life insurance sale,
an agent must be equipped with technical aspects of insurance
knowledge, he must possess analytical ability to analyze human needs, he
must be abreast with up to date knowledge of merits or demerits of other
instruments of investment available in the financial market, he must be
endowed with a burning desire of social service and over and above all
this, he must possess and develop an undeterred determination to succeed
as a Life Insurance Salesman. In short he must be an agent with
professional approach in life insurance salesmanship. Such an agency
force is expected to be helpful not only in proper field underwriting but
also after sales. servicing. concomitant and essential elements for higher
retention of business.

The insurance company, being a corporate structure, does not deal

directly with the customers to promote the insurance business. It avails
the help of middlemen to undertake the promotion such on its behalf and
the agents are middlemen or intermediaries. Section 40 of Insurance Act
1938 authorizes the payment of the remuneration to the agents for the
services. Section 42 of the Act enumerates the essential qualifications for
their appointment and issuing of licenses. The appointment of agents to
procure policies of insurance is a general practice among insurance
companies all over the world. The agents are allowed to market the
insurance business but not allowed to issue the policies. The agent has no
right to conclude the insurance contract and the final approval or rejection
of contract proposal is vested with the insurer, the principal. But, in
promoting the insurance business, the agent binds the principal to all
activities such as receipt of premium, enquiries and publishing of
information of the insurance contracts and products.

The agent is bound by duty and responsibility to convey the

message to the insurer. But, giving the information to the agent does not
bind the insurer as the agent is appointed only to promote the insurance
Claims Management in Life Insurance

business. In times of disputes, the agent is under an obligation to settle

the issue of claims by way of negotiations and mediations to retain the

Role of agents in an Insurance


1. Full information must be provided to the proponent at the point of

sale to enable him to decide on the best cover or plan to minimize
instances of cooling off by the proponents.
2. An agent should be well versed in all the plans, the selling points
and also be equipped to assess the needs of the clients.
3. Adherence to the prescribed Code of Conduct for agents is of
crucial importance. Agents must, therefore, familiarize themselves
with provisions of the Code of Conduct.
4. Agents must provide the office with the accurate information about
the prospect for a fair assessment of the risk involved. The agents
confidential report must, therefore, be completed very carefully.
5. Agents must also possess adequate knowledge of policy servicing
and claim settlement procedures so that the policyholders can be
guided correctly.
6. Submission of proposal forms and proposal deposit to the branch
office immediately to avoid delays and to enable the office to take
timely decisions.
7. A leaflet or brochure containing relevant features of the plan that is
being sold should be available with the agents.

If the agents are well conversant with the claim settlement procedure
and assist the claimants in completing the necessary requirements, it
would not only quicken the process of claim settlement and enhance their
professional status but also help the organization to improve upon their
outstanding claim ratio. This, while further boosting the image of the

Claims Management in Life Insurance

organization may provide them an overflowing fountain for further

business in those families. The performance of agents will now depend
on not how many hours he works but the quality of service, his attitude to
customers and the image that he will create for the entire life insurance
business. Thus the agent under the changing economic scenario can
achieve their objectives by practicing psycho-marketing strategies. Their
objectives are survival and growth. Maximization of business is an end to
achieve these objectives.

Role of surveyors and assessor in

claims settlment

Insurance users pay their premiums, year after year, trusting their policies
to protect their lives or businesses in the event of a loss. However, there
are innumerable instances where a genuine insurance user with a genuine
loss and a seemingly valid claim, has been denied his claim amount – in
full or part. This happens because the insurance company is not able to
estimate the total amount of the claims. In life insurance claims the
insurance company tries to reject the claims without knowing the cause of
the death or loss of the person.
Surveyors and Loss Assessors have been around for decades - we have all
heard of them and some of us have had occasion to use their services –
but it is quite surprising how little is actually known and understood
about them – their job, their duties & responsibilities, their role vis-à-vis
insurers and insureds, and the insured’s rights and duties vis-à-vis
surveyors and assessors. This is because they never come in the lime light
but the main work of assessment and survey of loss is done by them.

Duties and responsiblities of surveyors and loss


Claims Management in Life Insurance

A surveyor and loss assessor shall, for a major part of the working time,
investigate, manage, quantify, validate and deal with losses (whether
insured or not) arising from any contingency, and report thereon, and
carry out the work with competence, objectivity and professional
integrity by strictly adhering to the code of conduct expected of such
surveyor and loss assessor.
The following are their duties:
i. declaring whether he has any interest in the subject-matter in
question or whether it pertains to any of his relatives, business
partners or through material shareholding.
ii. maintaining confidentiality and neutrality without jeopardising the
liability of the insurer and claim of the insured;
iii. examining, inquiring, investigating, verifying and checking upon
the causes and the circumstances of the loss in question including
extent of loss, nature of ownership and insurable interest;
iv. conducting spot and final surveys, as and when necessary and
comment upon franchise, excess/under insurance and any other
related matter;
v. surveying and assessing the loss on behalf of insurer or insured;
vi. assessing liability under the contract of insurance;
vii.pointing out discrepancy, if any, in the policy wordings;
viii.satisfying queries of the insured/insurer and of persons connected
thereto in respect of the claim/loss;
ix. giving reasons for repudiation of claim, in case the claim is not
covered by policy terms and conditions;
x. taking expert opinion, wherever required;
xi. A surveyor or loss assessor shall submit his report to the insurer as
expeditiously as possible, but not later than 30 days of his
appointment. Provided that in exceptional cases, the afore-
mentioned period can be extended with the consent of the insured

and the insurer.

Claims Management in Life Insurance

Surveyors and Loss assessors Report:

The report of surveyors and loss assessors will be the authentic
report. The report contains the investigations and results of the
investigations, recommendation and assessments of the surveyor and
assessor. The surveyors will state the causes of the loss whether remote or
direct, the extent of actual total loss, insurance policy amount, value of
salvage and assassment of payment of claims. The report of the loss
assessors will be a solid ground to settle the claims. If the insurer is of the
opinion that the loss assessor or the surveyor has acted under some
personal interests then the insurer may decide to re-investigate the matter
and on receiving the report can decidethe claims payment.

Impact of claims on underwriting

Insurance underwriting is the process of classification, rating, and

selection of risks. In simpler terms, it's a risk selection process. It is the
process of selecting and classifying exposures. Underwriting is one of the
aspects of insurance that makes most people’s eyes glaze over. But
underwriting is one of the most important parts of the insurance process.
And knowing what an underwriter does — and why it’s so important —
is helpful for people who are shopping for a new policy. Claims
settlement has a direct impact upon underwriting. If the claims of certain
insurance products are frequently received they have an impact upon the
claims reserves and warrant review of the product and take decision
either to modify the terms or continue.
Addition or deletion of the clauses, changing the time span of the
insurance product or other changed, are discussed upon frequency of
claims and quantum of amount paid. Thus the underwriter fixes the
premium of the product considering various factors such as cost of risk,
administration expenses, brokerage or marketing ezpenditure, claims
settlement expenses and budgeted profit.the premium is the present value
of the future risk. The underwriting department and claims management
are related in sharing the information of the claim to find out the current
weaknesses, strengths and the possible improvements.
Claims Management in Life Insurance

Insurance is based on risk. When you get an insurance policy, the

insurance company is taking on some of your risk. The underwriter's job
is to use all the information gathered from numerous sources to determine
whether or not to accept a particular applicant. Individuals applying for
individually-owned life and health insurance typically receive more
underwriting scrutiny than members holding a group policy. An
underwriter’s job is to make sure that the insurance charges just the right
amount for the coverage it provides. They figure how much risk is
represented, how much coverage the company can offer, and how much
that coverage should cost. The underwriter's primary function is to
protect the insurance company insofar as is possible against adverse
selection (very poor risks) and those parties who may have fraudulent
The underwriter has a number of resources that can be called upon to
provide the necessary information for the risk selection process. These
sources include:
• The policy application;
• Medical history and examinations;
• Inspection reports;
• The Medical Information Bureau (MIB); and
• The producer or insurance agent.
Life insurance companies each have their own extensive policy and
procedure manuals they are supposed to follow in determining whether or
not to issue an Individual Life insurance policy, and in pricing that policy.
The insurer's underwriters typically use a combination of factors that
experience shows equates with the risk of death (and premature death).

They include the applicant's answers to a series of questions such as:

(1) age, sex (except in several states that require "uni-sex" rates,
(2) height, weight, and health history (and often family health history --
parents and siblings),

Claims Management in Life Insurance

(3) the purpose of the insurance

(4) marital status and number of children,
(5) the amount of insurance the applicant already has, and any additional
insurance s/he proposes to buy
(6) occupation (some are hazardous, and increase the risk of death), and
income (to help determine suitability),
(7) smoking or tobacco use (, as smokers have shorter lives),
(8) alcohol (excessive drinking seriously hurts life expectancy),
Thus the claims payment and information relating to the claims
settlement will be directly helpful to the underwriting departments either
to modify the present product or to consider the information for the

Frauds in claims settlement

Insurance fraud is any deliberate deception/dishonesty
committed against or by an insurance company, insurance agent, or
consumer for unjustified financial gain. It occurs and may be committed
at different points in the transaction by different parties such as policy
owners, third-party claimants, intermediaries and professionals who
provide services to claimants. The nature of these frauds may vary from
an inflated/exaggerated value of a legitimate claim to a completely
fabricated or bogus claim where losses never really occurred. Promises
made with no intention to perform them can be treated as a fraud.

Claims Management in Life Insurance

The essential components of an insurance fraud are:-

 Intent to deceive

 Desire to induce insurance company to pay more than it otherwise


The fradulent claims may be of two categories:

• The cause or the claim itself is fradulent
• The claim may be genuine but the method of calculation or the
evidences, or the information submitted may be fradulent in nature.
As such any fraud made by the insured or the insurer in concluding the
insurance contract or the claims settlement, makes the entire contract
viocable at the option of the person on whom the fraud is played.
Creating forged documents such as wills, legal heir certificates,
assignments of the policies and other papers to support their claim,
deliberate destruction of the insured subject with an intention to get the
policy amount all constitute different types of frauds. Sometimes the
frauds may also result from gross negligence or forbearance to use
reasonable exertions and means at hand. The fradulent claim by the
assured will deprive him the right to claim as the insurer has the right to
reject it.

Examples of insurance fraud:

1) Creating a fraudulent claim
2) Overstating amount of loss
3) Misrepresenting facts to receive payment
4) Bogus agents/Sale of forged cover notes

How to protect yourself from a fraud:

Claims Management in Life Insurance

1. Be wary of unregistered insurance agents. Before purchasing

insurance, contact your insurance company to ensure the agent is
an authorised agent.

2. Avoid paying premiums in cash. Opt to pay for premiums by

cheque or money order. Made payable to the insurance company
instead of the agent.

3. Make sure you receive a written policy after payment of your first

4. Immediately examine your insurance policy to ensure the coverage

is what you have requested for and ensure that the premium
amount paid is reflected in the cover note/policy. Request for a
receipt as evidence of payment of premium.

5. Do not sign a blank insurance application, or insurance claim form.

6. Be suspicious if the price of insurance seems suspiciously low

from other insurance companies.

7. If you meet with an accident, be careful of strangers who offer you

quick cash or urge you to deal with specific workshops, medical
clinic or law firm. They could be part of a fraud syndicate.

8. Insist on detailed bills for repairs and medical services rendered

and check for accuracy.

9. Discreetly contact your insurance company or the police if you are

being defrauded or have been/are being persuaded to take part in a
fraud. Provide as many details as possible about the incident -
name of the individual(s) involved, amount, date(s), and type of

Claims Management in Life Insurance

Comparative analysis of Life Insurance

Corporation of India & ICICI
Prudential Life Insurance

Parameters LIC ICICI Prudential

Life cover LIC provides only ICICI offers 2 options –
anticipated cover
Anticipated cover

Claims Management in Life Insurance

Group Term Cover

Customer service LIC is profit oriented ICICI is customer
and customer service oriented and customer
& satisfaction are not satisfaction and delight
its main objectives. are its main objectives.
Claims payment period The claims payment It settles the claims in
period is long. It takes 8-10 working days.
almost a month to
settle the claims except
in some cases.
Documentation Claims settlement here It settles the claims
involves a lot of with least
documentation work. documentation.
Use of technology LIC has only limited In ICICI the claims
use of technology in processing system is
claims settlement such all centralised from
as only data is data input till claims
centralised. payment.
Efficiency of The persons The persons
employees employeed in claims employeed in claims
department does not department in ICICI
have indepth are qualified
knowledge and skills. professionals in the
Infrastructure The infrastructure is The infrastructure is
not attractive. They attractive and modern.
follow all the
traditional practices.

Claims Management in Life Insurance

Current data of LIC

outflow 2007-08 2006-07
Payments to Rs in crores
Claims by maturity
Numbers(in lakhs) 134.22 129.29
Amount 31,955.18 32,093.90

Claims by death
Numbers(in lakhs) 6.73 6.02
Amount 5,250.40 4,443.32

Annuties 2,393.24 2,189.64

Surrenders 18,024.59 15,955.31

Total 57,623.41 54,682.17

Outstanding claims at 2007-08 2006-07

the end of the year
Rs. In crores

Maturity 123.02 42.95

Death 232.41 205.44

Total 355.43 248.39

Ratio of outstanding 0.96% 0.68%

claims to claims

Claims Management in Life Insurance


Claims settlement
Claims settled during the year


Year Number Amount

Number Amount

2007-08 134.22 31,873.35 6.73


2006-07 129.29 32,101.92 6.02


2005-06 115.58 24,724.58 5.27


Some performance highlights (as at 31/03/2007) :

1. Total Income : Rs. 1,76,559.28 crores

2. Total Premium Income : Rs. 1,12,307.77 crores
3. Total life fund : Rs. 5,72,602.80 crores

Claims Management in Life Insurance

4. Total Assets : Rs. 6,74,514.78 crores

5. Total Investment : Rs. 6,12,705 crores
6. Investment in : Rs. 71,017 crores
7. Policies in force : 21.79 crores

Case study

Life Insurance Corporation of India v/s Mrs. Sunanda Kanthale

According to complainant Sunanda Kanthale, her husband

Manoharrao Kanthale who worked as a stores superintendent with the
Amravati branch of Maharashtra State Corporation, purchased an
insurance policy for Rs 20,000 on November 28, 1992. The policy which
was a non-medical one, was scheduled to mature on November 24, 2004,
she said. Unfortunately Manoharrao passed away on October 22, 1993,
10 months and 25 days from the date of purchasing the instrument.
Being the nominee in the policy, she asked for her claim for an amount of
Rs 40,000 (under double benefit provision in accident cases) and made an
application to the Akola Branch Manager of LIC. The senior manager of
LIC (Amravati Division) however refused to settle the claim vide his
letter dated August 4, 1994. As the policy was a non-medical one, the
reason given by the official for not settling the claim was also a bogus
one, she alleged. Sunanda then wrote to the area manager of LIC,
Mumbai, justifying her claim. The Mumbai office too (vide letter dated
April 20, 1995) refused to settle the claim, Kanthale added.
She then lodged a complaint with Akola District Consumers Grievances
redressal forum. In the complaint, she appealed to the forum to issue the

Claims Management in Life Insurance

necessary directives to the LIC for paying Rs 40,000 along with 18 per
cent interest, a compensation of Rs 50,000 towards mental tension caused
and Rs 1,000 towards legal expenses.
Defending the stand taken by the company, the LIC refuted all the
allegations made by Sunanda. Manoharrao, who held the policy, had kept
the information about his health a secret while purchasing the instrument,
the company alleged.
The forum referred to columns 14 and 26 in the application form where
the policy purchaser had made statements about his health. The form was
duly singed by Dr B R Jain, the forum said. The LIC officials produced
proofs before the forum regarding heart disorder of the policy holder and
sick leave availed by him after taking the policy. However, they could not
prove that Manohar was not well on the day of purchasing the policy.
The District Consumers Grievances Redressal Forum has directed Senior
Divisional Manager of Life Insurance Corporation (LIC), Amravati, Area
Manager, Mumbai, and Branch Manager, Akola, to pay Rs 20,000 to
Sunanda Kanthale towards insurance claim besides interest on the amount
from October 22, 1993, till the date of payment at a rate of 12 per cent.
The forum has also directed LIC to pay compensation of Rs 10,000 to the
woman for causing mental tension to her during the four years, after her
husband's death, in releasing the insurance amount.
If the insurance company failed to pay the compensation within two
months from the date of receipt of copy of the judgment, the company
will be liable to pay interest at a rate of 18 per cent on the amount till
final payment besides legal expenses of Rs 250, the forum ruled. The
forum also ruled that though the compensation amount, demanded by the
complainant, appeared exaggerated, considering the troubles she had to
face in the last four years for settlement of claim, the company should
pay her Rs 10,000 towards compensation.

Claims Management in Life Insurance

Life Insurance Corporation of India v/s Neelam Mehta

The case arose following the refusal of LIC to pay the insurance
money following the death of her husband Mahendrabhai Mehta. LIC had
repudiated the life policy alleging that he had hid from it that he was
suffering from diabetes at the time of taking the insurance policy in
december 1993. On 6 November 1994 he died following a heart attack.
Neelam told the consumer forum that she came to know that her husband
had a life policy with lic three months after his death, when she started
receiving 'forms one after another to be filled through lic agent'. She then
filled up all the relevant papers.

She also formally informed lic about the death of her husband and
claimed the insurance money. thereupon, lic intimated her that the claim
for her husband's insurance policy was repudiated because the life
assured had 'deliberately' withheld information regarding his 'pre-existing
illness which was diabetes' and which, it said, had led to his death. it also
alleged that because of this disease he had been hospitalised before his
death and that he was a insulin-dependent diabetic. Neelam represented to
both the bhavnagar and ahmedabad offices of lic and later to its zonal
office in mumbai urging them to recommend her claim to the review

This request was made in september 1996 and till now no decision
had been taken and the 'matter is still under consideration'. she also
denied that her husband was a diabetic or that he had been hospitalised
for this. He had not been treated for any ailment during the five years

Claims Management in Life Insurance

preceding his death, she asserted. The forum comprising its president,
K.D. Desai, members Leena Desai and Malaybhai Kantharia, found that
lic had failed to prove that Mr. Mehta had made false statement and
misrepresentation about his health. "the burden of proving that there was
suppression of material fact and that it was made fraudulently" lied on lic
and it had failed to prove it, the forum observed. LIC therefore was
legally and morally duty-bound to pay the claim, it said.

Consumer disputes redressal forum, Ahmedabad, has directed LIC

of India to pay up Rs. 50,000 plus 12 per cent interest for seven years, as
insurance money due to her after her husband's death. the forum also
ordered payment of Rs. 5000 for causing mental agony, hardship and
inconvenience to Neelamben. It granted Rs. 3000 as cost.


Life Insurance Corporation of India v/s Lily Rani Roy

The petitioner has purchased a life insurance policy from the

appellate and premiums were paid regularly. The maturity of the said
policy was in 1978. Because of some personal reasons the claim was not
filed. The petitioner had filed the claim after 13 years of its maturity. The
LIC of India rejected the payment on a plea that claim is time barred
claim and as such the claim will not be paid.

The petitioner had filed a complaint with Consumer Council with a

request to direct the LIC for the payment of the maturity claim as the
policyholder had paid the entire premium till the date of the maturity and
has the right to receive the claim amount. Assured held LIC guilty under
Consumer Protection Act, 1986 Section (I) (g) for deficiency in service.

But, the LIC of India pleaded that the Corporation will be

maintaining the records for a period of five years only and the
Corporation has received the claim notice from the petitioner in 1990
which is far beyond the time. The LIC also produced a photo copy of the

Claims Management in Life Insurance

maturity claims payment register showing the payment of the

complainant’s money.

After examining all the facts, the State forum has declared that the
petitioners cannot claim the payment of policy as it is already time
barred. On the decision of the State Commission, the petitioners have
filed a petition with the National Commission.

The National Commission, after verifying the terms of the policy,

has opined that though the payment of claim istime barred, the insurance
company should have given notice to that effect or should include a
clause in the policy document stating that the time barred maturity claims
will not be paid. As the Corporation has filed to bring this information to
the notice of the policyholder or failed to create the awareness among the
policyholders, it has failed in its duties and as such it is liable to pay the
claim to the petitioners. Thus, the National Commission has ordered the
payment of time barred maturity claims.

The insurance business is major service oriented business in the
world. The services offered by the insurance industry is well recognized
and utilized by the general public and commercial sector of the world.
The life insurance business has covered nearly 40% of the population of
the world. Global players with strong brands in the insurance industry
today set up their back office operation in low cost countries, manage
capital on a global basis, make use of their special skills world wide and
use their superior managerial ability to secure leadership positions in the

The claims management is an integral part of insurance. It involves

the storage , processing and transmission of information relating to
settlement of insurance claims. The use of Information Technology also
plays a very important role in claims settlement. In managing the claims
handling function, insurers seek to balance the elements of customer
satisfaction, administrative handling expenses, and claims overpayment
leakages. As part of this balancing act, fraudulent insurance practices are
a major business risk that must be managed and overcome. Disputes
Claims Management in Life Insurance

between insurers and insureds over the validity of claims or claims

handling practices occasionally escalate into litigation which should be
solved with due care.

In this fast developing scenario it will not be enough if companies have

the futuristic strategies. Implementation of the strategies, effectively
adapting them to ongoing changes can spell success. The success of claim
management depends on the satisfaction of the customers. The customers
are attracted to an insurance company by its state of art claim service.
Therefore, before designing an IT system for claim management,
customer’s expectations are to be taken in to account. The customers,
their needs, knowledge of how the market works, and what they want,
these are the things that are important for an insurance company for
serving the customers in a better manner through better technology.


The information is taken from various sources such as books, magazines,

articles, internet etc.
Theories and Practices in Insurance
Insurance watch
Business world
Business today

Claims Management in Life Insurance

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