VIVEK COLLEGE OF COMMERCE

CHAPTER – 1

INTRODUCTION TO INSURANCE IN INDIA

The insurance sector in India has come a full circle from being an open
competitive market to nationalization and back to a liberalized market again.
Tracing the developments in the Indian insurance sector reveals the 360-
degree turn witnessed over a period of almost two centuries.

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.

CLAIMS MANAGED BY LIC Page 1

 VIVEK COLLEGE OF COMMERCE

1.1) History:

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.

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 nationalized. 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.

CLAIMS MANAGED BY LIC Page 2

 VIVEK COLLEGE OF COMMERCE

Important milestones in the general insurance business in

India

 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 up.
 1972: The General Insurance Business (Nationalization) Act, 1972
nationalized 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 company.

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

CLAIMS MANAGED BY LIC Page 3

 VIVEK COLLEGE OF COMMERCE

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.

CLAIMS MANAGED BY LIC Page 4

 VIVEK COLLEGE OF COMMERCE

1.2) Definition of Insurance:

Insurance in its basic form is defined as, “A contract between two

parties whereby one party called insurer undertakes in exchange for a fixed
sum called premiums, to pay the other party called insured a fixed amount
of money on the happening of a certain event."

1.3) Types of Insurance:

A. 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 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.

 Definition of life Insurance:

“Life insurance is a contract between two parties whereby one

party agrees to pay to the other party, a certain amount of money as
premium to make good the loss of life arising out of an uncertain event of
death in which the insured has interest”.

CLAIMS MANAGED BY LIC Page 5

 VIVEK COLLEGE OF COMMERCE

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.

B. General Insurance:

Insurance other than ‘Life Insurance’ falls under the category of General
Insurance. General Insurance comprises of insurance of property against fire,

CLAIMS MANAGED BY LIC Page 6

 VIVEK COLLEGE OF COMMERCE

burglary etc, personal insurance such as Accident and Health Insurance, and
liability insurance which covers legal liabilities. There are also other covers
such as Errors and Omissions insurance for professionals, credit insurance
etc.
Non-life insurance companies have products that cover property against
Fire and allied perils, flood storm and inundation, earthquake and so on.
There are products that cover property against burglary, theft etc. The non-life
companies also offer policies covering machinery against breakdown,
there are policies that cover the hull of ships and so on. A Marine
Cargo policy covers goods in transit including by sea, air and road. Further,
insurance of motor vehicles against damages and theft forms a major chunk of
non-life insurance business.
There are general insurance products that are in the nature of package
policies offering a combination of the covers mentioned above. For instance,
there are package policies available for householders, shop keepers and also
for professionals such as doctors, chartered accountants etc. Apart from
offering standard covers, insurers also offer customized or tailor-made ones.
 
Suitable general Insurance covers are necessary for every family. Most
general insurance covers are annual contracts. However, there are few
products that are long-term.
 
It is important for proposers to read and understand the terms and
conditions of a policy before they enter into an insurance contract. The

CLAIMS MANAGED BY LIC Page 7

 VIVEK COLLEGE OF COMMERCE

proposal form needs to be filled in completely and correctly by a proposer to

ensure that the cover is adequate and the right one.

1.4) INSURANCE REGULATORY AND

DEVELOPMENT AUTHORITY (IRDA)

The Insurance Regulatory and Development Authority (IRDA) is a

national agency of the Government of India, based in Hyderabad. It was
formed by an act of Indian Parliament known as IRDA Act 1999, which was
amended in 2002 to incorporate some emerging requirements. Mission of
IRDA as stated in the act is "to protect the interests of the policyholders, to
regulate, promote and ensure orderly growth of the insurance industry and for
matters connected therewith or incidental thereto."
Duties, Powers and Functions of IRDA

Section 14 of IRDA Act, 1999 lays down the duties, powers and
functions of IRDA

CLAIMS MANAGED BY LIC Page 8

 VIVEK COLLEGE OF COMMERCE

(1) Subject to the provisions of this Act and any other law for the time being
in force, the Authority shall have the duty to regulate, promote and ensure
orderly growth of the insurance business and re-insurance business.

(2) Without prejudice to the generality of the provisions contained in sub-

section (1), the powers and functions of the Authority shall include,

(a) Issue to the applicant a certificate of registration, renew, modify,

withdraw, suspend or cancel such registration;

(b) protection of the interests of the policy holders in matters concerning

assigning of policy, nomination by policy holders, insurable interest,
settlement of insurance claim, surrender value of policy and other terms and
conditions of contracts of insurance;

(c) Specifying requisite qualifications, code of conduct and practical training

for intermediary or insurance intermediaries and agents;

(d) Specifying the code of conduct for surveyors and loss assessors;

(e) Promoting efficiency in the conduct of insurance business;

(f) Promoting and regulating professional organizations connected with the

insurance and re-insurance business;

(g) Levying fees and other charges for carrying out the purposes of this Act;

(h) Calling for information from, undertaking inspection of, conducting

enquiries and investigations including audit of the insurers, intermediaries,
insurance intermediaries and other organizations connected with the insurance
business;

CLAIMS MANAGED BY LIC Page 9

 VIVEK COLLEGE OF COMMERCE

(i) Control and regulation of the rates, advantages, terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section 64U
of the Insurance Act, 1938 (4 of 1938);

(j) Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and other
insurance intermediaries;

(k) Regulating investment of funds by insurance companies;

(l) Regulating maintenance of margin of solvency;

(m) Adjudication of disputes between insurers and intermediaries or insurance

intermediaries;

(n) Supervising the functioning of the Tariff Advisory Committee;

(o) Specifying the percentage of premium income of the insurer to finance

schemes for promoting and regulating professional organizations referred to
in clause (f);

(p) Specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector; and

(q) Exercising such other powers as may be prescribed

CLAIMS MANAGED BY LIC Page 10

 VIVEK COLLEGE OF COMMERCE

CHAPTER -2

LIFE INSURANCE CORPORATION OF INDIA

2.1) Introduction:

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 force.

LIC has hundred divisional offices and has established extensive

training facilities at all levels. At the apex, are 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 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.

CLAIMS MANAGED BY LIC Page 11

 VIVEK COLLEGE OF COMMERCE

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 policyholders.

It has been started with the objectives of spreading Life Insurance

widely and in particular to the rural areas, meets the various life insurance
needs of the community that would arise in the changing social and economic
environment.

2.2) History:

The Oriental Life Insurance Company, the first corporate entity in India
offering life insurance coverage, was established in Calcutta in 1818 by Bipin
Behari Dasgupta and others. Europeans in India were its primary target
market, and it charged Indians heftier premiums. The Bombay Mutual Life
Assurance Society, formed in 1870, was the first native insurance provider.
Other insurance companies established in the pre-independence era included

 Bharat Insurance Company (1896)

 United India (1906)
 National Indian (1906)
 National Insurance (1906)
 Co-operative Assurance (1906)

CLAIMS MANAGED BY LIC Page 12

 VIVEK COLLEGE OF COMMERCE

 Hindustan Co-operatives (1907)

 Indian Mercantile
 General Assurance
 Swadeshi Life (later Bombay Life)

The first 150 years were marked mostly by turbulent economic conditions.
It witnessed, India's First War of Independence, adverse effects of the World
War I and World War II on the economy, and in between them the period of
worldwide economic crises triggered by the Great depression. The first half of
the 20th century also saw a heightened struggle for India’s. The aggregate
effect of these events led to a high rate of bankruptcies and liquidation of life
insurance companies in India. This had adversely affected the faith of the
general public in the utility of obtaining life cover.

The Life Insurance Act and the Provident Fund Act were passed in 1912,
providing the first regulatory mechanisms in the Life Insurance industry. The
Indian Insurance Companies Act of 1928 authorized the government to obtain
statistical information from companies operating in both life and non-life
insurance areas. The subsequent Insurance Act of 1938 brought stricter state
control over an industry that had seen several financially unsound ventures
fail. A bill was also introduced in the Legislative Assembly in 1944 to
nationalize the insurance industry.

CLAIMS MANAGED BY LIC Page 13

 VIVEK COLLEGE OF COMMERCE

CHAPTER – 3

CLAIMS IN INSURANCE

3.1) Introduction:

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. 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 company.

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

CLAIMS MANAGED BY LIC Page 14

 VIVEK COLLEGE OF COMMERCE

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.

3.2) Definition:

“Claim is a right of insured to receive the amount secured under the

policy of insurance contract promised by Insurer.”

3.3) Important terms in Claims:

 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
which 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.

CLAIMS MANAGED BY LIC Page 15

 VIVEK COLLEGE OF COMMERCE

 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 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.

CLAIMS MANAGED BY LIC Page 16

 VIVEK COLLEGE OF COMMERCE

 Death claims
Beneficiaries in 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 follows:

 The legal heirs of the policyholder.

 The nominees, assignees and transferees

 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.

CLAIMS MANAGED BY LIC Page 17

 o
M
S
e
m
lP
D
y
h
v
rti
tu
c
n
b
a
is
d
 3.4) Types of Claims:
VIVEK COLLEGE OF COMMERCE

 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.

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 MANAGED BY LIC Page 18

 VIVEK COLLEGE OF COMMERCE

The general requirements for each of these claims are briefly explained
below.
A. 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 company.

 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 is easily

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

CLAIMS MANAGED BY LIC Page 19

 VIVEK COLLEGE OF COMMERCE

B. 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 15 th
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 fulfilled.

C. 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 collection.

D. 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

CLAIMS MANAGED BY LIC Page 20

 VIVEK COLLEGE OF COMMERCE

customer returns the policy document and signs a discharge form. The claim
cheque is then paid to the customer within two weeks.

E. 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.

F. 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.

3.5) 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

CLAIMS MANAGED BY LIC Page 21

 VIVEK COLLEGE OF COMMERCE

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 expenditure, 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.

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

CLAIMS MANAGED BY LIC Page 22

 VIVEK COLLEGE OF COMMERCE

adverse selection (very poor risks) and those parties who may have fraudulent
intent.

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),

(3) The purpose of the insurance

(4) Marital status and number of children,

CLAIMS MANAGED BY LIC Page 23

 VIVEK COLLEGE OF COMMERCE

(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 future.

3.6) 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 MANAGED BY LIC Page 24

 VIVEK COLLEGE OF COMMERCE

claims handling process, insurers must also focus on the effectiveness of their
claims decisions. 

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 carriers. 

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.

CLAIMS MANAGED BY LIC Page 25

 VIVEK COLLEGE OF COMMERCE

3.7) 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 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,

CLAIMS MANAGED BY LIC Page 26

C
H
g
m
i
l
d
n
a
s VIVEK COLLEGE OF COMMERCE

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, and 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 MANAGED BY LIC Page 27

 VIVEK COLLEGE OF COMMERCE

 Claims management:

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.

CLAIMS MANAGED BY LIC Page 28

 VIVEK COLLEGE OF COMMERCE

Thus, it is concerned with the procedural methods and also interpretations

of the claims philosophy. Claims handling may 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 and customer service. The insurer’s commitment to the
service of the customer is a part of the claims management.

CLAIMS MANAGED BY LIC Page 29

 VIVEK COLLEGE OF COMMERCE

CHAPTER – 4

CLAIMS MANAGEMENT BY LIC

4.1) Introduction:

The claims department is one of the key departments in an insurance

company. The claims department has the following functions to perform:

 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.

 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

CLAIMS MANAGED BY LIC Page 30

 VIVEK COLLEGE OF COMMERCE

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.

CLAIMS MANAGED BY LIC Page 31

 VIVEK COLLEGE OF COMMERCE

4.2) Guidelines Issued by IRDA:

4.2.1) 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 frees 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

CLAIMS MANAGED BY LIC Page 32

 VIVEK COLLEGE OF COMMERCE

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.

4.2.2) 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
conditions;
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;

CLAIMS MANAGED BY LIC Page 33

 VIVEK COLLEGE OF COMMERCE

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.

CLAIMS MANAGED BY LIC Page 34

 VIVEK COLLEGE OF COMMERCE

n) the documents that are normally required to be submitted by a

claimant in support of a claim under the policy.

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 cancellation.

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 possible.

CLAIMS MANAGED BY LIC Page 35

 VIVEK COLLEGE OF COMMERCE

CHAPTER – 5

SETTLEMENT OF CLAIMS

The settlement of claim arises either due to Maturity of the Policy or

due to Death of the Policyholder.

Normally claims should be settled within a period of 15days from the

receipt of all requirements/clarifications from the claimant. If the settlement
of claim is delayed beyond 30days after the receipt of all the requirements,
such claim should be settled along with penal interest at 8% p.a. for all the
delayed period.

One party with a claim against another will frequently settle that claim
by contract, sometimes as the result of negotiation without litigation,
sometimes as a result of negotiation during litigation, including after
judgment or appeal, or sometimes as the result of mediation.  The claims
come in all varieties, including breach of contract, tort, restitution, property,
or violation of a statute.  Some claims are disputed, others undisputed.  For
example, a tort claim for personal injury as a result of an automobile accident
is disputed if the alleged tortfeasor denies that she was negligent.  A claim for
breach of contract is disputed if the alleged breaching party denies formation
of a contract, or denies failing to perform, or asserts discharge of contractual
duties for any of a variety of reasons.  A statutory claim for damages is
disputed if the alleged wrongdoer denies that its conduct falls within the
scope of the statute.  Of course many claims are undisputed.  A contract claim

CLAIMS MANAGED BY LIC Page 36

 VIVEK COLLEGE OF COMMERCE

for repayment of a loan is typically undisputed, for example, as is a judgment

for the payment of money (e.g. Foakes v. Beer).  Some claims, even if
undisputed, are nevertheless unliquidated (i.e. presently one does not know
and cannot calculate with mathematical certainty the precise amount owing),
while other claims, even if disputed, are liquidated (i.e. presently one knows
or can calculate with mathematical certainty the precise amount owing if the
amount is owing at all). 

     Parties with claims, whether disputed or undisputed, liquidated or

unliquidated, typically settle those claims to avoid the expense,
inconvenience, time, friction, stress, and uncertainty of litigation or
enforcement of judgment or simply to get on with life.  Judges favor
settlement, because settlement reduces judicial workload and frees judges for
work on other matters before the court.  Settlement of claims also restrains the
cost of maintaining a judicial system.  Accordingly, judges are favorably
disposed to enforce a contract that has settled a claim when one of the parties
to the settlement contract later seeks to avoid the settlement.  Economists
argue that the likely enforceability of settlement agreements provides an
important incentive to settlement. 

     Like any contract, a contract that settles a claim requires mutual assent and
a consideration (or consideration substitute).  In addition, one must pay
attention to the form of the settlement contract to determine the nature of
remedies in the event one of the parties breaches the settlement contract.

CLAIMS MANAGED BY LIC Page 37

 VIVEK COLLEGE OF COMMERCE

5.1) Factors affecting the Claim 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 company.

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

least at the time of happening of event or loss sufferings. Without
having the insurable interest in the subject matter, no person can get
benefit or compensation.

CLAIMS MANAGED BY LIC Page 38

 VIVEK COLLEGE OF COMMERCE

 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.

Alternatives while settling the claims:

 Pay the claims as reported by the surveyor or the claims made by the
insurer whichever is less.

 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.

CLAIMS MANAGED BY LIC Page 39

 VIVEK COLLEGE OF COMMERCE

 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.

5.2) Settlement of accidental claims:

If two or more persons are injured or killed in one accident, the owner,
bailee of an owner, or personal representative of a decedent may settle and
pay any bona fide claims for damages arising out of personal injuries or
death, whether reduced by judgment or not, and the payments shall diminish,
to the extent of those payments, the person’s total liability on account of the
accident. Payments aggregating the full sum of thirty thousand dollars
($30,000) shall extinguish all liability of the owner, bailee of an owner, or
personal representative of a decedent for death or personal injury arising out
of the accident that exists pursuant to this chapter, and did not arise through
the negligent or wrongful act or omission of the owner, bailee of an owner, or

CLAIMS MANAGED BY LIC Page 40

 VIVEK COLLEGE OF COMMERCE

personal representative of a decedent nor through the relationship of principal

and agent or master and servant

5.3) 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.

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.

CLAIMS MANAGED BY LIC Page 41

 VIVEK COLLEGE OF COMMERCE

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

witness:
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 standing acceptable to LIC.

CLAIMS MANAGED BY LIC Page 42

 VIVEK COLLEGE OF COMMERCE

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.

CLAIMS MANAGED BY LIC Page 43

 VIVEK COLLEGE OF COMMERCE

5.4) Settlement of Death claims:

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 information:

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

CLAIMS MANAGED BY LIC Page 44

 VIVEK COLLEGE OF COMMERCE

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 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.

CLAIMS MANAGED BY LIC Page 45

 VIVEK COLLEGE OF COMMERCE

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:

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

 the assignee, in case the policy was validity and unconditionally

assigned;

CLAIMS MANAGED BY LIC Page 46

 VIVEK COLLEGE OF COMMERCE

 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.
3816)
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)

CLAIMS MANAGED BY LIC Page 47

 VIVEK COLLEGE OF COMMERCE

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
v. Claim Form No. 3783A
vi. Assignment / Re-assignment Deed, if any (if policy not assigned
/nominated)
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

CLAIMS MANAGED BY LIC Page 48

 VIVEK COLLEGE OF COMMERCE

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.

5.5) 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.

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

CLAIMS MANAGED BY LIC Page 49

 VIVEK COLLEGE OF COMMERCE

 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.

The delay in claims settlement may be due to the following

reasons:

1. 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

CLAIMS MANAGED BY LIC Page 50

 VIVEK COLLEGE OF COMMERCE

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.

2. 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.

3. 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.

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

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

CLAIMS MANAGED BY LIC Page 51

 VIVEK COLLEGE OF COMMERCE

 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 settlement.

 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 MANAGED BY LIC Page 52

 VIVEK COLLEGE OF COMMERCE

5.6) Frauds in Claim 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.

The essential components of an insurance fraud are:-

 Intent to deceive

CLAIMS MANAGED BY LIC Page 53

 VIVEK COLLEGE OF COMMERCE

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

would.

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

CLAIMS MANAGED BY LIC Page 54

 VIVEK COLLEGE OF COMMERCE

CLAIMS MANAGED BY LIC Page 55

 VIVEK COLLEGE OF COMMERCE

How to protect yourself from a fraud:

1. Be wary of unregistered insurance agents. Before purchasing insurance,

contact your insurance company to ensure the agent is an authorized
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
premium.

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.

CLAIMS MANAGED BY LIC Page 56

 VIVEK COLLEGE OF COMMERCE

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 fraud.

CLAIMS MANAGED BY LIC Page 57

 VIVEK COLLEGE OF COMMERCE

CHAPTER – 6
ROLE OF AGENTS, SURVEYORS AND
ASSESSORS IN CLAIM SETTLEMENT

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

CLAIMS MANAGED BY LIC Page 58

 VIVEK COLLEGE OF COMMERCE

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 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 customer.
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.

CLAIMS MANAGED BY LIC Page 59

 VIVEK COLLEGE OF COMMERCE

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
insured’s, 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.

CLAIMS MANAGED BY LIC Page 60

 VIVEK COLLEGE OF COMMERCE

CHAPTER – 7
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.

CLAIMS MANAGED BY LIC Page 61

 VIVEK COLLEGE OF COMMERCE

She then lodged a complaint with Akola District Consumers

Grievances redressal forum. In the complaint, she appealed to the forum to
issue the 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.

CLAIMS MANAGED BY LIC Page 62

 VIVEK COLLEGE OF COMMERCE

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 MANAGED BY LIC Page 63

 VIVEK COLLEGE OF COMMERCE

CHAPTER – 8

CONCLUSION

8.1) 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
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 The claims payment It settles the claims in
period 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 centralized from

CLAIMS MANAGED BY LIC Page 64

 VIVEK COLLEGE OF COMMERCE

as only data is data input till claims

centralized. payment.
Efficiency of The person’s The person’s
employees employed in claims employed in claims
department does not department in ICICI
have in depth are qualified
knowledge and skills. professionals in the
field.
Infrastructure The infrastructure is The infrastructure is
not attractive. They attractive and modern.
follow all the
traditional practices.

CLAIMS MANAGED BY LIC Page 65

 VIVEK COLLEGE OF COMMERCE

8.2) Recommendations and Suggestions:

The insurance business is major service oriented business in the world.
The services offered by the insurance industry are 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 worldwide and use their superior managerial
ability to secure leadership positions in the industry.

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 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

CLAIMS MANAGED BY LIC Page 66

 VIVEK COLLEGE OF COMMERCE

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.

CLAIMS MANAGED BY LIC Page 67

 VIVEK COLLEGE OF COMMERCE

BIBLIOGRAPHY
The information is taken from various sources such as books, magazines,
articles, internet etc.

Books:

1. Theories and Practices in Insurance

WEBLIOGRAPHY
www.insuremagic.com

www.licindia.com

www.icicprulife.com

www.insurancewatch.com

www.insuranceonline.com

Search engines:

www.google.com

www.ask.com

CLAIMS MANAGED BY LIC Page 68

 VIVEK COLLEGE OF COMMERCE

CLAIMS MANAGED BY LIC Page 69