The Insurance Regulatory and Development Authority of India (IRDAI) has called on the non-life insurance industry to establish a standard definition of claims and a uniform method for calculating claim settlement ratios across different business lines. The move comes as companies currently use varied definitions, leading to inconsistent reporting and potential misrepresentation of their financial health and customer satisfaction metrics.
Insurance companies interpret claims differently—some register a claim at the first instance, while others only do so after establishing liability under the policy. For customers, a settled claim typically means receiving payment that meets their expectations. However, some insurers classify claims as settled if they close cases due to missing documents or reject claims because they fall outside the policy’s scope. While this practice may improve reported settlement ratios, it can distort the true picture of how many policyholders receive the benefits they are entitled to.
According to an industry source, the General Insurance Council has already submitted its recommendations to IRDAI on standardizing definitions. The goal is to ensure clarity in how companies report claim settlements, eliminating discrepancies caused by differing internal approaches. “The general insurance council has submitted their views on standard definition of claim and uniform approach to define claim settlement ratio for various lines of business to IRDAI as required by them,” the source stated. “This is to ensure that a clear picture emerges in regard to a company's claim settlement standards without variation in different approaches by each company at various steps.”
Former IRDAI Member (Non-Life) KK Srinivasan emphasized that a claim should only be considered settled once the client confirms satisfaction. “In simple reality a claim can be treated as settled only if the client confirms that it is settled. Till that is done, the claim remains pending or disputed,” he said. Srinivasan also highlighted the legal aspect, noting that if an insurer repudiates a claim, the policyholder can dispute it in court within three years. “If a claim is repudiated by an insurance company, it can be disputed legally within 3 years of repudiation and will remain disputed till the court disposes it off,” he explained. “Once a court admits the repudiation or dispute for hearing, it has to be treated as unsettled till the court or forum disposes it off and the order of the court is complied with.”
The issue extends to discharge vouchers—documents insurers ask claimants to sign, acknowledging full and final settlement. However, many customers remain dissatisfied even after signing, leaving the status of such claims open to interpretation. The definition of a claim is critical because it influences the incurred claims ratio, which in turn affects underwriting profits. A broad definition could force insurers to set aside funds for every demand, even when coverage is not active.
Industry experts also caution against judging a company’s performance based on a single year’s claim settlement ratio. “The claim settlement ratio has to be seen over a period of time,” said a former CEO of a non-life insurance company. “It is possible for a company to have a claim settlement ratio of over 100 if it settles all claims and the claims pending from the previous year,” the CEO added, highlighting that ratios above 100 do not necessarily indicate better performance but may reflect the settlement of older pending claims.
The push for standardization reflects growing concerns about transparency and fairness in the insurance sector. By adopting uniform definitions, IRDAI aims to provide consumers and stakeholders with a more accurate and reliable assessment of insurers’ claim settlement practices, fostering greater trust in the industry.
