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How to choose the best health insurance company

Healthcare costs in India are increasing at a distressing rate. Based on some estimates the annual
healthcare inflation is the range of 15 25%. A hospitalization for a serious illness can cost Rs 5
lakhs or above. In the absence of health insurance, a serious illness in your family can cause
financial distress or leave a big hole in your hard earned savings, at a time when you least expect
it. Health insurance is essential in ensuring your familys critical healthcare needs. Buying health
insurance is not the easiest of tasks. There are several key considerations involved in buying
health insurance (please read our article Protect your family with health insurance). There are
more than 25 General Insurance Companies marketing and selling a large number of health
insurance or Mediclaim plans. These plans have a wide range of premiums, limits and features.
For health insurance buyers, premium is an important consideration. However, it is very important
to note that, a cheaper policy is no good, if the health insurance company for some reason or
another cannot fulfil the claim. Even if the health insurer fulfils the claim, if it takes a very long time
to fulfil the claim, it can put you in a stressful situation.
There are a few important metrics that one needs to analyze, when evaluating health insurance
companies. The most important operating metrics that health insurance buyers need to evaluate
relate to claims settlement. Unfortunately the disclosure standards of the Indian health insurance
companies, especially with regards to operating metrics related to claims settlement, leave much

to be desired. Health insurance companies publish this data on a quarterly or annual basis. But
the quality of the data is not great and it is not available in an easy to use comparable format.
Even the Insurance Regulatory and Development Authority (IRDA) does not report the claims
settlement ratio of health insurance companies in its annual report like it does for life insurance
companies, which is a little surprising because health insurance is an extremely important
requirement in our country. For the benefit of our readers, Advisorkhoj.com has collated the claims
settlement data from some leading health insurance companies. However, we should put some
disclaimers, regarding the claims settlement data before we proceed further.
Segregation between Group and Individual Mediclaim plans: Health insurance companies do
not segregate the claims between group and individual Mediclaim plans.
Closed Claims: You will see later in the article, a metric called "closed claim". What is a "closed
claim"? This is a claim, which has been submitted by the insured, but not paid, because sufficient
documentation was not submitted by the insured. After a certain period of time, these cases are
closed by the health insurer. They can be reopened, once the insured submits the required
documentation. The problem with closed claims is that, there is not total consistency in how health
insurers report these numbers
Quality of data: The quality of data in the public disclosures of the health insurance companies is
not excellent, and in some cases a few adjustments had to be made, to match the balances
carried forward to the next quarter
However, you can use our analysis as a directional indicator of how health insurance companies
settled claims. For our analysis, we have looked at two important metrics, Claims Settlement Ratio
and Ageing of Outstanding Claims. These two metrics will give you directional guidance on the
likelihood and efficiency of the payment of your claims made to the health insurance company.
Claims Settlement Ratio
This is the single most important metric to consider when choosing a health insurance company.
The metric tells us how many health insurance claims were made to the insurer in a financial year
and how many were fulfilled or paid, and gives you a broad sense of the likelihood that your
insurance claim will be paid. This metric is critical in determining the reliability of the health
insurance company, irrespective of the premium to cover ratio and brand image of the company.
We have analyzed this data for 10 leading private sector and 3 public sector general insurance
companies. In most cases the data pertains to FY 2013 2014. However, in some cases,
complete FY 2013 2014 data was not available and therefore, we used FY 2012 2013 data for
such cases. The table below shows the claims settlement ratios for the some of the leading private
sector health insurers for the FY 2013 2014 (except ICICI Lombard, Royal Sundaram and Tata
AIG, where the data is for FY 2012 2013).

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You should pay particular attention to the metrics, claims rejected and claims closed without
payment. These are the cases where the insured did not receive any payment. There can be a
number of reasons for claims rejected or closed without payment. The main reason why claims
can be rejected is on account of pre-existing medical conditions. However, it suffices to say that a
reject or closed without payment percentage of more than 10% warrants further analysis. There
may be genuine reasons for rejects or closed without payments to be high. Therefore, one needs
to look at this data over a 3 to 4 year period. If rejects are generally low over a 3 to 4 year period,
with occasional spikes, one may treat the spike as an outlier. However, if the rejects are
consistently high, then it is a cause of concern. Claims settled ratio is also an important metric, but
if claims settled is low due to pending cases that are likely to be settled in the next quarter, then it
is not so much of a concern (e.g. in the case of ICICI Lombard). We will discuss the ageing of
pending claims later in our article. We will now discuss the claims settlement ratio for the public

sector health insurance companies.

Ageing of Pending Claims

Another important metric for a health insurance provider is how quickly the company is able to
settle claims. Ageing of pending claims helps the Mediclaim buyer evaluate the efficiency of the
claims settlement process. The table below shows the ageing of pending claims less than 3
months, between 3 months to 6 months, between 6 months and 1 year and more than one year,
for the leading private sector health insurance companies.

The table below shows the ageing of pending claims less than 3 months, between 3 months to 6
months, between 6 months and 1 year and more than one year, for the public sector health
insurance companies.

Conclusion
Choosing a good health insurer provider is an important step in choosing the right Mediclaim
policy for your health insurance needs. As discussed earlier, premium should not be the only
consideration in selecting a Mediclaim policy. Health insurance should always been seen as
protection for your familys health and wellness. As such, the considerations above should be very
important when you should choose your Mediclaim policy. You should consult an experienced
health insurance adviser, to help to you select the best Mediclaim policy.
Author Details
Dwaipayan Bose
An alumnus of IIM Ahmedabad, Dwaipayan is a Finance and Consulting professional, with 13
years of management experience, mostly in MNCs like American Express and Ameriprise
Financial, both in India and the US. In his last role, he was the Chief Financial Officer of
American Express Global Business Services in India. His key interests are building best in
class organizations, corporate governance and talent development