Effect of Claim Settlement Practices on the Operating Efficiency and Profitability of Life Insurance Companies of India-A Comparative Study of Public and Select Private Sector

Abstract

Claim settlement management is the one of the most important service that comes under the crucial quality of life insurance service. The objectives formulated in this study are to study the claims settlement practices of public and select private sector life insurance companies, India and to analyze the effect of claim settlement practices on the operating efficiency and profitability performance of public sector and select private sector life insurance companies, India. The exploratory research design is applied. The convenient sampling technique is used for selecting the companies from the life insurance industry which constitutes 87.07% share in the industry as per IRDA Annual report 2009–10. The LIC of India is the only one state owned firm in the public sector and ICICI Prudential Life Insurance, HDFC Life Insurance, SBI Life Insurance and Bajaj Allianz Life Insurance companies under private sector were taken as sample. The IRDA annual reports and the selected company annual reports from 2001–02 to 2012–13 were used for collecting the required data. The various benefits such as maturity benefits, death claims, annuity, etc., paid to the policy holders by the select public and private sector companies are analyzed. Operating efficiency of life insurance companies are calculated by using data envelopment analysis tool with the dea online software. The market share (MS), Return on Assets (ROA), Claim Settlement Ratio (CSR) and Claim Rejection Ratio (CRR) were calculated. These are analyzed by using statistical tools such as linear growth rates, compound annual growth rates, and coefficient of variance, mean and coefficient of correlation. The analyzed reveals that LIC of India is the industry leader not only in sale of policies but also in the benefit payments. In overall benefit payments among the select private sector life insurance companies, ICICI Prudential Life insurance was the top performer followed by HDFC Life insurance, Bajaj Allianz life insurance and SBI Life insurance. It is concluded that the claim settlement practices of life insurance industry had statistically significant impact on their profitability as well as operating efficiency. More-over, claim settlement practices of select life insurance players had statistically significant positive impact on the profitability but they had statistically significant negative impact on their operating efficiency due to increased operational risk for enhanced sales or more underwritten policies Hence companies should maintain optimum claim settlement practices to achieve good market share and profitability.