Life insurers continue to focus on growth and improved customer experience. In the business of insurance, the timely settlement of claims is a vital service function that needs no special emphasis. The claims settlement record of an insurer is, therefore, the touchstone of its performance and plays a big role in decision-making process of the customers.

Thus, the void of losing a loved one can never be filled, however, adequate life insurance cover can definitely anchor the financial needs of the survivors. Nominee is the true beneficiary of the proceeds of the claim and it is for him/her to address the formalities of filing the claims with the life insurance company. Hence, while it is important for companies to bring in flexibility and enable efficiencies for claims management, it is also important for the customers to share true and complete information at the inception stage. In order to ensure that the insurer is in the position to promptly settle all its claims, it needs to do a careful evaluation of the risks that would arise out of the underwritten contracts and price their premiums accordingly. Thus, the claims settlement process typically begins deriving reference from the information shared by the policy holder at the policy issuance stage.

Good faith

Uberrima fides is a Latin phrase which means ‘utmost good faith’. It is the name of a legal doctrine which governs insurance contracts. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal. Similarly, Section 45 of Insurance Act, 1938, stipulates that no life insurance policy can be called in question on ground of mis-statement of facts after two years from the commencement of policy unless the insurer shows that such statement was on material matter and that the policyholder knew at the time of making it that the statement was false or that it suppressed facts which were material to disclose. This act is the basis of any claims settlement process.

Material information

There are a number of ways in which a company gathers information from the customer during the policy issuance stage. Most of the customer/policy holder information is collected through the interactions had by the sales personnel with the customer. Thus, sales personnel act as a vital link between the customers and the life insurance company as they are the first point of contact for the customers. Verification and further ratification of information is done through pre-issuance verification calls and welcome calls through the service stages.

In some cases, customers withhold material information on past medical/ insurance history, chronic ailments, habits like drinking or smoking or occupation/ income etc. Sometimes these facts are not disclosed which are material to the risk assessment and consequently the claim is repudiated. Had the insured stated all relevant facts at the time of buying the policy, he might have had to pay slightly extra premium, with the assurance that his beneficiaries would not suffer a financial loss in the event of a claim. Of course, there is also a chance that the insured’s request for protection would be turned down on disclosure of one of the material facts, but at least all his/her premiums would not have gone wasted.

Filling up proposal form

There could also be some adviser-related anomalies at the proposal stage. However, companies have been tirelessly educating customers on issues like filling up the details of the proposal form on their own instead of leaving it to the advisers or exercising the free look option in case if they spot any irregularities in the policy document. If the customer notices that there is some medical condition that he/she may have and is not mentioned in the proposal form appended along with the policy document it is important the customer notifies the insurance company immediately so that the condition can be documented. Customer-friendly initiatives such as sharing a copy of the application form, medical reports etc are introduced as measures to mitigate these anomalies.

Claim settlement

Claims settlement comes at the fag end of the life insurance value chain and it is important for both, the company to gather and the policy holder to disclose the material facts during the issuance and service stage. During the claims intimation stage, the company refers to the historic information collected through the afore-mentioned exercise and in addition could also request information from sources like hospitals, legal authorities, and doctors in order to make an informed claims settlement decision. Apart from information asymmetry, another major cause of delay in claim settlement is usually the inability of beneficiaries to submit requisite documents in the manner prescribed by the insurance company. Insurance companies generally seek additional requirements/documentation for early claims. If the documentation is in order, the claim is processed without undue delays.

To be legally enforceable, all insurance contracts must be supported by an insurable interest or it may be termed a fraud. Again, there is a thin line to differentiate an intentional fraud from an innocent one since most of this is discovered at the time of claims. Life insurance contract is also a contract of indemnity and the beneficiary/nominee in the policy must have an insurable interest in the life to be insured. In the life insurance policy, persons having relationship by marriage (example, husband and wife), blood (example, father and son) or adoption (example, adopted son and his mother), have been recognised as having insurable interest.

In conclusion, the act of procuring insurance totally hinges on multiple interactions created along the whole value chain and any one weak link has the propensity to destroy and distort the whole process. As mentioned before, this usually shows up during the last leg, i.e. the claims settlement stage.

Insurers take all steps to ensure that the business written is authentic and one of the focus areas continues to be reduction in incidence of claim repudiation and restricting it to the bare minimum. A balance between being too liberal at inception and too rigid at claims needs to be created. Frauds at all levels have to be handled with zero tolerance and bringing transparency in all processes and decisions is what will strengthen this. One must attempt at sharing and receiving as much information with the customer to make the processes thoroughly robust. Trust is the underlying principle and to build and retain it is the major endeavour of all the companies.

The author is Chief Financial Officer & Head, Institutional Sales, Birla Sun Life Insurance. The views expressed in this article are his own

Campa Cola society in Worli, Mumbai, has raised many questions about the inside reality of real estate sector in India. It has highlighted the nexus between politicians, builders and bureaucrats. It has also highlighted the urgency of regulation to safeguard interests of common people and investment risks in a real estate as an asset class. In India, most of the people consider the real estate investment, particularly in residential premises, as safe investment with a potential of high reward which may not hold true now. The reason why people bet more on this sector is availability of easy loans in recent times and tax benefits available on such home loans. Another major reason is involvement of black money which makes this sector more attractive for those who generate black money and avoid tax payments. There are three major risks involved in any investment avenue, namely default risk, market and interest rate risk and reinvestment risk. But, in real estate, the risk of illegal activities and regulation violation is a major risk with potentials to wipe out your entire investment.

Investments in real estate undoubtedly come under high-risk and high-return category. Expecting high-return without looking at high-risks involved can spoil your entire financial life. The investment required in real estate is also too high and if your calculations go wrong, you may have to compromise on your other major financial goals.

Risk also comes from not knowing about the risk involved in the asset class. Very few of us know that builders and developers have to take as many as 150 approvals from different local and state authorities before starting any construction activity. There is no way that a common man can find out whether a particular builder has obtained all the required permissions before starting construction. A common man is comfortable booking or buying a flat when he trusts some builder on the basis of past history or construction of building is complete without any break. A common man is more concerned about the vacant possession of the flat and once the keys are handed over to him, he feels that everything is in order.

It is the poor occupants who suffer as they are ignorant about the legal issues and do not have means to find out the issues in the real estate. It is a reality that a large chunk of politicians are actively involved in this business as the profit margin is too high. The builders also get associated with political class to bypass the procedures. The cost of a legal fight is also too high and it takes years to get the justice even if one is able to get it after spending lakhs of rupees.

Municipal authorities should also try to put all details in public domain via websites etc. and try to educate people. It’s also high time that Government appoints real estate regulator and regulate the entire real estate market to protect the common man.

If you are buying it for self-use, you should be extra cautious. It is advisable to appoint an advocate and take legal help before finalising any deal as it involves big investment. A small mistake or hurry can spoil your entire financial life and you have to live miserable life for no fault of yours. The time has come to take informed decision to safe guard your own interest.

The author is Head, Financial Planning, ApnaPaisa. The views expressed in this article are his own