Will your insurance claims get settled faster now?

Very soon, your insurance companies’ chief executive officers (CEO) could well break into a sweat if their subordinates unfairly reject your claims. Under rising public pressure over claim rejections and other complaints, the Insurance Regulatory and Development Authority of India (Irdai) recently linked the remuneration of insurer CEOs and top management to how effectively they serve their customers, besides other financial parameters. These include claim responsiveness and grievance redressal, which affect individual policyholders. For instance, under ‘claim responsiveness’, insurers must declare the proportion of claims settled (in full, in part, repudiated or rejected or closed) within 15 days, 30 days, 60 days, and so on.

The rationale

“Today, there is a trust deficit in the insurance industry. The focus should be on customers first and then shareholders, whereas shareholder interests currently tend to dominate. So, in principle, CEO KPIs (key performance indicators) should be aligned more closely with customer outcomes. In that context, this is a good move by the regulator,” says Vighnesh Shahane, former MD and CEO, Ageas Federal Life Insurance.

Irdai had, in May 2024, issued a master circular on corporate governance, prescribing some of these rules for determining CEO pay. Its current circular differs from the existing guidelines in that the parameters were broader and insurers had greater flexibility earlier. “The new circular specifies parameters, like financial ratios, product performance, fraud-control measures, claim responsiveness, and so on. The framework has moved from regulatory visibility to public transparency,” says industry veteran Nilesh Sathe.

The flip side

Not everyone believes more regulations will always work in policyholders’ favour. “The objective is that policyholders should ultimately benefit. The real question is whether this will actually happen,” according to Sathe, also a former member of Irdai.

For instance, can a CEO realistically be given a target that complaints must fall by a certain percentage? “There will always be situations where claims have to be rejected, say, in cases involving fraud, impersonation or other genuine concerns. Should the company avoid investigating such cases only to keep the claim rejection numbers low? Certainly a big ‘no’,” adds Sathe.

“Also, the policyholder is unlikely to understand what such ratios signify,” says a senior industry executive who did not wish to be named. Instead, the customer experience depends on product design, distribution quality and servicing capabilities.

“Insurer boards are now obliged to more explicitly link key management persons’ (KMP) compensation to policyholder outcomes and disclose the prescribed objective self-assessments. However, it would be utopian to expect immediate revolutionary shifts in service levels or fairness in service engagements,” says Thomas Devasia, insurance and reinsurance expert, and former member, non-life, Irdai.

Plug loopholes

Even as the insurance industry cries ‘micromanagement’ and ‘over-prescription’ that will add to the compliance burden, independent experts feel the circular, in fact, does not touch upon certain aspects that need greater supervision. “On grievances, the Irdai has not attempted anything significantly new. One of the biggest issues being discussed today is mis-selling, but there is silence on it,” says a former Irdai member who spoke on the condition that he would not be named. The effectiveness of new regulations will finally be determined by implementation.