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

 

Narayana Gowd. Talla^*

Professor, Dept. of MBA, Samskruti College of Engineering and Technology,

Kondapur (Village), Ghatakesar (Mandal), R.R District-501301.

 

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.

 

 

 

INTRODUCTION:

Every life insurance company has two gateways – the Underwriting Gateway when the insurer under certain terms selects a proposal for life insurance, and the Claims Gateway, through which policy benefits are passed on to the life assured/ policyholder or a beneficiary in the event of death or survival of the term. Needless to add, Claims performance is the litmus test of life insurers credibility. If it repudiates or delays payment of a claim, a customer is going to be very and many more customers and prospects would have cause to doubt the promise made by the insurer. At the same time, if claims are paid blindly, overlooking fraudulent claims that can arise, it can seriously erode the financial soundness of the insurer and put its other customer’s interests in jeopardy. Again, it is not just important to know whether a claim has been paid. It is perhaps equally important to ask whether the claim actually serves to benefit the beneficiary. A claim need not necessarily be the end of all relationships with a customer. It could also be the beginning of another relationship. Effective claim settlement management practices crucial for the sustainable performance of the life insurance players in the dynamic Indian insurance industry.

 

REVIEW OF LITERATURE:

Kalani et al.,( 2014)¹ studied on Comparative study of claim settlement ratio of LIC with other insurance companies in India. Rajesh K and Sarvesh(2013)² examined on claim settlement of Life insurance policies in Insurance services with special reference to Life Insurance Corporation of India.

 

Sonal Nena ( 2013)³ in her study titled, “Performance Evaluation of Life Insurance Corporation of India” felt that Insurance industries in India now a day have taken a giant shape especially after privatization and introduction of Insurance Regulatory and Development Authority (IRDA). Life Insurance Corporation of India is one of the most significant public sector which plays excellent job in selling its products. But since last few years it is facing tremendous competition as many private players have emerged. The idea behind this study therefore to know the growth and performance of LIC. LIC is doing good job, managing the products, and related marketing strategies effectively. But as per analyzed data we can say that LIC need to control the Operating Expenses, to not affect its income. LIC is pioneer institute in Indian economy; so after IRDA and privatization of insurance sector, the way of achieving the effective result is not smooth task, but LIC has to work.

 

Narayana Gowd.T et al.,(2012)⁴ analyzed the current status, growth, volume of competition and SWOT analysis of the Life Insurance Industry, the overall performance of Life Insurance Industry of India between pre and post reform era and measured the effectiveness of investment strategy of LIC of India during the period 1998 to 2010–11. The study reveals that there is tremendous growth in the performance of Life Insurance Industry and LIC due to the policy of LPG. More over Insurance Industry improved a lot due to the emergence of private sector and allowing foreign players. There is huge change in the investment strategy of LIC .Private sector performance in terms of total premium earned, number of polices issued and market share is in increasing trend where as LIC market share is in declining trend except in total premium earned and total polices issued.LIC ‘s investment towards stock mark instruments is in increasing trend. The investment of LIC increased from 77.5% in 1998 to 95.81% in2010-11 due to effective regulation of SEBI and increasing transparency and performance of Indian corporate securities. M. Selva Kumar and J Vimal Priyan (2012)⁵ concluded that LIC continues to dominate insurance sector. Private sector insurance companies also tried to increase their market share. Life insurance has today become a mainstay of any market economy since it offers plenty of scope for garnering large sums of money for long periods of time. The study compared premium, policies and market shares of LIC of India and private sector life insurance companies.

 

 Ram Prasad and Saini ( 2010)⁶ observed that life insurance companies should start pure risk plans with minimum guaranteed return to motivate investment. Emphasis on micro and rural insurance should be penetrated and insurance agents should stop sharing commission and start servicing clients. Insurance contract and other policy documents should be in easy language.

 

Karve Dr. Shrikrishna Laxman(2009)⁷ “Principles of Life Insurance”, Himalaya Publication House Mumbai. Through this book Author provide an Understanding of the elementary Prin­ciples of the life insurance and their Relevance, details nature of the life insurance contract and its applications, various factors affecting measurements of risk, in-depth details about various life insurance products and various legal provisions affecting life insurance contract and process and art of selling life insurance products. This book is found useful for even Layman who wants to understand the basic of life insurance. Kutty k. Shashidharan (2008)⁸, Managing Life Insurance”, Prentice Hall of India Pvt. Ltd, New Delhi. In this book Author provide analytical and complete view of every dimension of life insurance management in the sequence of its purpose, principles, purchase, products, process and people in a very easy to under­stand language. In this book details of the two core operations of an insurance company that is underwriting and claims are also discussed in detail.

 

Sinha (2007)⁹ attempted to compare the operating efficiency of life insurance companies for the financial year 2004-05 using the DEA. In this paper, operating income and net premium income have been taken as the output and the number of agents employed and equity capital as the inputs. The comparison of the efficiency score showed that the private insurance companies are still lagging behind LIC, in terms of the net premium income. Not only LIC, but 'SBI Life' also has a technical efficiency score of 1, i.e., these two companies were declared technically efficient (given the inputs utilized they produce the maximum observable output). All other private life insurance companies had the technical efficiency score less than 1, in terms of operating income. No life insurance company except LIC was found technically efficient.

 

P.K.Gupta (2006)¹⁰ “Fundamental of Insurance”, Himalaya Publication House In this book author covers various aspects of Life Insurance, Life insurance players and Products, Claim settlement and Procedural aspects. Author also conceptu­alizes the Risks Management and Control Systems. The recent changes in the Insurance Sector are due to increase complexity of financial services, new and alternative insurance products etc. This book is very helpful for understanding the overall Life in­surance sector.

 

Viswanadham P (2005)¹¹ studied claims settlement operations performance evaluation of LIC of India with the objectives of performance of both maturity and death claims settlement operations of LIC of India before and after IRDA period. Claim settlement processing time expressed in speed ratios and adjudicatory measures of the corporation to redress the grievances of policy holders in settlement of claims. Study concluded that corporation should provide efficient service with courtesy in the matters of claim settlements. It should create highest trust in the minds of policy holders through grievance redressal procedure and open and transparent manners. Hence, satisfied customer will be a brand ambassador for the insurance and claim settlement is the most important function.

 

From the above literature survey, it is clear that few researchers studied claim settlement performance but no one attempted to analyze the effect of claim settlement practices on the operating efficiency and the profitability of life insurance companies of India – A comparative study of public and private sector. Hence the present research work is carried out to fill the gap.

 

STATEMENT OF THE PROBLEM:

Claim settlement is the one of the most important service that comes under the crucial quality of life insurance service. Persons who are holding or planning for investment in the life insurance will always desire to have prompt settlement. Many options are available for life insurance services to the customers in India due to LPG of life insurance sector in 2000. LIC of India still strongly holds major market due to prompt claim settlement, trust and adaptability to change with changing environment. Optimum claim settlement performance will have positive relationship with market share, operating efficiency and profitability of the life insurance firms. Highest quality of claim settlement is essential for the sustainable performance in the industry. Hence, the effect of claim settlement practices of life insurance companies on their operating efficiency and profitability - A comparative study of public and select private sector is undertaken as research work.

 

OBJECTIVES OF THE STUDY:

The following objectives are formulated as follows:

§  To study the claims settlement practices of public and select private sector life insurance companies, India.

§  To analyze the impact of claim settlement practices of select life insurers on their operating efficiency and profitability.

 

HYPOTHESES:

The following hypotheses are formulated based on the objectives of the study.

Ø H_O1: The impact of claim settlement practices of select life insurers on their profitability is not significant statically.

Ø  H_1: The impact of claim settlement practices of select life insurers on their profitability is significant statistically.

Ø H_O2: The impact of claim settlement practices of select life insurers on their operating efficiency is not significant statically.

Ø H_2: The impact of claim settlement practices of select life insurers on their operating efficiency is significant statistically.

 

RESEARCH METHODOLOGY:

The study has applied an explorative research design. The study is based on secondary source of data. The sample life insurance companies have selected by using convenient sampling. The universe for the study is the Indian Insurance Industry which consists of 23 life insurance firms. The industry consists of Life Insurance Corporation of India under public sector while remaining 22 life insurance companies under private sector. The life insurance companies such as Life Insurance Corporation of India, Bajaj Allianz Life Insurance Company, ICICI Prudential Life Insurance Company, HDFC Standard Life Insurance Company and SBI Life Insurance is considered as sample for the study. The market share of select life insurance companies is calculated based on total life insurance premium written. The sample companies have occupied 87 % of Industry market share as per 2009-10, IRDA report.

 

Table: 1 – Sample of Life Insurance Companies

Source: Annual Report of IRDA, 2009-10.

 

The secondary data have been collected from 2001-02 to 2012-13. As the study is also based on secondary data, the researcher largely relied on the various published and unpublished sources. The various benefits paid to the policy holders by the select public and private sector companies are analyzed .The Claim Settlement Ratio (CSR) and Claim Rejection Ratio (CRR) are calculated to examine and compare the claim settlement practices of public and select private sector companies. The performance of public and select private sector life insurance firms are analyzed by calculating the Return on Assets (ROA), Operating Efficiency (OEcrs1) and Market Share (MS). The DEA method enables extension of the single input-single output technical efficiency measure to the multiple output-multiple – input cases. In its constant returns to scale form, the DEA methodology was developed by Charnes, Cooper and Rhodes. DEA measures the efficiency of life insurers by calculating the ratio of weighted sum of outputs to weighted sum of inputs. The value added approach is considered to be  most appropriate method to measure inputs outputs of financial firms and is widely used in service firms. The Measuring and comparison of operating efficiency of Public and select Private sector life insurance companies are carried out in constant return to scale (CRS) with three combinations of input-output mix variables consisting of six input variables as well as six output variables. For measuring operating efficiency Data Envelopment Analysis (DEA) is applied. First combination of input-output mix(1^st Input-output mix): number of agents, commission expenses, operating expenses, equity share capital, policy liabilities and number of branch offices as input variables where as net benefits paid, net premium income, investment income, other income and total assets and net worth as output variables.

 

The impact of claim settlement practices of select public and private sector life insurance firm’s on their profitability and operating efficiency are examined by applying multiple regression analysis. The benefits paid to their policy holders of select public and private sector companies are compared by calculating mean, linear growth rate(LGR), compound annual growth rate(CGR) and coefficient of variance (CV).

 

ANALYSIS AND INTERPRETATION:

The table-2 reveals that the mean or average death claims settled by LIC of India was to the extent of Rs .6065.40 crore which is the highest in the industry as a industry leader followed by Bajaj Allianz life insurance to the extent of  Rs .256.43 crore, SBI Life Insurance to the extent of Rs.215.61crore, ICICI Prudential Life insurance to the extent of Rs.175.36 crore and HDFC Life Insurance to the extent of Rs.67.57 crore respectively during the study period 2001-02 to 2012-13. With regard to linear growth rate (LGR), SBI Life insurance was the highest performer which attained a growth rate of 99.3 % followed by LIC of India to the extent of 99.2 %, ICICI Prudential Life insurance to the extent of 90.9 %, Bajaj Allianz Life insurance to the extent of 98.7 % and HDFC Life Insurance to the extent of 96.8 % respectively. With regard to compound growth rate (CGR), HDFC Life insurance was the highest performer which attained a growth rate of 47.83 % followed by Bajaj Allianz Life insurance to the extent of 37.72 %, ICICI Prudential Life insurance to the extent of 31.76 %, SBI Life Insurance to the extent of 20.76 % and LIC of India to the extent of 11.38 % respectively. With regard to consistency in the performance of death settlement, the coefficient of variation (CV) should be least for the life insurer to say that the company is consistently settling the claims. LIC of India was the top ranker or performer in the consistency of death claims settlement as it had least Coefficient of variation to the extent of 28.17 %, 2^nd rank was awarded to the SBI Life insurance, 3^rd rank was awarded to the ICICI Prudential Life insurance, 4^th rank was awarded to the HDFC Life insurance and 5^th rank was awarded to the Bajaj Allianz Life insurance respectively.

 

Second important benefits paid by the life insurers are maturity claims. The mean or average maturity claims settled by SBI Life was to the extent of Rs .248.17crore which is the highest in the industry followed by LIC of India to the extent of Rs. 156.39crore, Bajaj Allianz life insurance to the extent of  Rs .52.93crore, ICICI Prudential Life insurance to the extent of Rs.51.14crore and HDFC Life Insurance to the extent of Rs.17.13crore respectively during the study period 2001-02 to 2012-13. With regard to linear growth rate (LGR), SBI Life insurance was the highest performer which attained a growth rate of 86.0 % followed by LIC of India to the extent of 85.6 %, Bajaj Allianz Life insurance to the extent of 84.5 %, HDFC Life Insurance to the extent of 78.7 % and ICICI Prudential Life insurance to the extent of 78.5 % respectively. With regard to compound growth rate (CGR), LIC of India was the highest performer as it attained a growth rate of to the extent of 134.47 % followed by HDFC Life insurance to the extent of 117.21 %, SBI Life Insurance to the extent of 87.44 %, Bajaj Allianz Life insurance to the extent of 45.97% and ICICI Prudential Life insurance to the extent of 24.95 % respectively.   

              

LIC of India was the top ranker or performer in the consistency of death claims settlement as it had least Coefficient of variation to the extent of 21.33 %, 2^nd rank was awarded to the ICICI Prudential Life insurance, 3^rd rank was awarded to the Bajaj Allianz Life insurance, 4^th rank was awarded to the SBI Life insurance and 5^th rank was awarded to the HDFC Life insurance respectively.

 

Table -2: Comparison of Various Benefit Payments of select Life Insurers

Particulars of Benefits	LICIN	BALIC	HDFCSL	ICICIPL	SBI LIC
Death Claims
a. Mean (in Rs.Cr.)	6065.40	256.43	67.57	175.36	215.61
b.LGR (%)	99.2	98.7	96.8	90.9	99.3
c.CGR (%)	11.38	37.72	47.83	31.76	20.76
d.CV (%)	28.17	78.87	78.42	53.99	51.34
Rank	1	5	4	3	2
Maturity Claims
a. Mean (in Rs.Cr.)	156.39	52.93	17.13	51.14	248.17
b.LGR (%)	85.6	84.5	78.7	78.5	86.0
c.CGR (%)	134.47	45.97	117.21	24.95	87.44
d.CV (%)	21.33	104.61	179.92	90.48	135.08
Rank	1	3	5	2	4
Annuities
a. Mean (in Rs.Cr.)	3345.79	1.58	1.84	44.86	8.58
b.LGR (%)	96.1	85.00	92.2	98.3	84.3
c.CGR (%)	16.32	52.67	24.60	55.79	182.61
d.CV (%)	40.56	139.87	62.50	56.71	140.79
Rank	1	4	3	2	5
Surrender value
a. Mean (in Rs.Cr.)	23026.87	1984.69	1423.64	6019.91	862.99
b.LGR (%)	85.4	88.00	96.1	94.2	84.3
c.CGR (%)	19.65	45.28	69.09	53.81	79.49
d.CV (%)	72.74	95.64	90.08	77.08	153.59
Rank	1	4	3	2	5
CV for total of the above benefits	60.11	92.88	90.11	76.03	132.33
Overall Rank	1	4	3	2	5

Source: SPSS and Annual reports sector life insurers based on data 2006-07 to 2012-13

 

Third important benefits paid by the life insurers are Annuities or Pensions. The mean or average annuity claim payments by LIC of India was to the extent of Rs.3345.79crore which is the highest in the industry as a industry leader followed by ICICI Prudential Life insurance to the extent of Rs.44.86crore, SBI Life Insurance to the extent of Rs.8.58crore, HDFC Life Insurance to the extent of Rs.1.84crore and Bajaj Allianz Life insurance to the extent of Rs1.58crore respectively during the study period 2001-02 to 2012-13. With regard to linear growth rate (LGR), ICICI Prudential Life insurance was the highest performer as it attained a growth rate to the extent of 98.3 % followed by LIC of India to the extent of 96.1 %, HDFC Life Insurance to the extent of 92.2 %, Bajaj Allianz Life insurance to the extent of 85 % and SBI Life insurance to the extent of 84.3 respectively. With regard to compound growth rate (CGR), SBI Life insurance was the highest performer as it attained a growth rate of 182.61% followed by ICICI Prudential Life insurance to the extent of 55.79 %, Bajaj Allianz Life insurance to the extent of 52.67 %, HDFC Life Insurance to the extent of 24.60% and LIC of India to the extent of 16.32 % respectively. Based on CV, the ranks were awarded to the Public sector life insurer (LIC of India) and for the select Private sector life insurers in the industry. LIC of India was the top ranker or performer in the consistency of annuities or pensions payments as it had least Coefficient of variation to the extent of 40.56 %, 2^nd rank was awarded to the ICICI Prudential Life insurance, 3^rd rank was awarded to the HDFC Life insurance, 4^th rank was awarded to the Bajaj Allianz Life insurance and 5^th rank was awarded to the SBI Life insurance respectively.

 

Fourth important benefits paid by the life insurers are surrenders. The mean or average surrender payments by LIC of India was to the extent of Rs. 23026.87crore which is the highest in the industry as a industry leader followed by ICICI Prudential Life insurance to the extent of Rs. 6019.91crore, Bajaj Allianz Life insurance to the extent of Rs 1984.69crore, HDFC Life Insurance to the extent of Rs.1423.64crore and SBI Life Insurance to the extent of Rs. 862.99crore respectively during the study period 2001-02 to 2012-13. With regard to linear growth rate (LGR), HDFC Life insurance was the highest performer as it attained a growth rate to the extent of 96.1 % followed by ICICI Prudential Life Insurance to the extent of 94.2 %, Bajaj Allianz Life insurance to the extent of 88 %, LIC of India to the extent of 85.4 % and SBI Life insurance to the extent of 84.3 respectively. With regard to compound growth rate (CGR), SBI Life insurance was the highest performer as it attained a growth rate of 79.49% followed by HDFC Life Insurance to the extent of 69.09%, ICICI Prudential Life insurance to the extent of 53.81%, Bajaj Allianz Life insurance to the extent of 45.28% and LIC of India to the extent of 19.65% respectively. With regard to LIC of India was the top ranker or performer in the consistency of surrender payments as it had least Coefficient of variation to the extent of 72.74%, 2^nd rank was awarded to the ICICI Prudential Life insurance with CV of 77.08 %, 3^rd rank was awarded to the HDFC Life insurance with 90.08 %, 4^th rank was awarded to the Bajaj Allianz Life insurance with 95.64 % and 5^th rank was awarded to the SBI Life insurance with CV of 153.59 % respectively.

 

Overall performance is measured by considering all the four benefits then the consistency in the benefits payments performance is measured by coefficient of variation. In overall consistency in benefits payments performance, the first rank was awarded to the LIC of India as its CV is to the extent of 60.11 % followed by 2^nd was awarded to ICICI Prudential Life insurance, 3^rd rank was awarded to HDFC Life insurance company, 4^th rank was awarded to Bajaj Allianz Life insurance and 5^th rank was awarded to the SBI Life insurance company respectively.

 

 It is observed that in the life insurers benefits payments, surrender values were large followed by death claims, maturity claims and annuities with regard to select private sector life insurance companies where as for LIC of India surrender values were large followed by death claims, Annuities or Pensions and maturity claims during the study. Moreover, LIC of India was the consistent and top performer among the four benefit payments of death claims, maturity claims, annuity or pension payments and surrenders .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. The linear and compound growth rates of LIC of India in the four benefits payments were lower than select private sector a life insurer which indicates that there are greater prospects for growth and development of private life insures than the Public sector life insurance company. Hence, it is suggested to LIC of India (Public sector) and select Private sector life insurance companies to adopt bench mark standards in claim settlement practices so that they become globally competent enough for achieving their corporate goals and optimum claimants’ satisfaction.

 

Comparison of Claim Settlement Practices:

The table-3 shows that LIC of India, the public sector life insurer has highest average claim settlement ratio of 95.28 %  with lowest reject ratio of 1.61 % during the study period of 2001-02 to 2012-13. LIC had lowest risk in CSR and CRR to the extent of 1.02 % and 1.07 % with high consistency in CSR and CRR  when compared with private sector life insurance companies. Public sector life insurance company was given first rank in both CSR and CRR where as ICICI P Life was given 2^nd rank in CSR and 3^rd rank in the CRR followed by Bajaj Allianz Life was given 3^rd rank in CSR and 2^nd rank in CRR, SBI Life was given 4^th rank in CSR and 5^th rank was given to HDFC Life insurance in both CSR and CRR. Therefore, it is observed that LIC of India was the outstanding player in the entire industry with good claim settlement practices.

 

 

 

Table-3: Comparison of Claim Settlement Practices of Select Life Insurers

Particulars	Claim Settlement Ratio(CSR)				Claim Rejection Ratio(CRR)
	Mean (%)	S.D (%)	C.V (%)	Rank	Mean (%)	S.D (%)	C.V (%)	Rank
Bajaj Allianz	81.68	6.5	7.96	3	10.89	5.06	46.46	2
HDFC Life	79.66	13.45	16.88	5	9.24	6.11	66.13	5
ICICI P Life	85.14	8.00	9.40	2	7.74	3.98	51.42	3
LIC	95.28	1.02	1.07	1	1.61	0.29	18.01	1
SBI Life	86.25	9.99	11.58	4	5.88	3.75	63.78	4

Source: IRDA Annual Reports and SPSS

 

It has proved that it is a trusted Public Sector Life Insurance Company. High CSR and low CRR will have good positive impact on the market performance of the companies. These are negative could be negative impact on the efficiency and profitability of the life insurer .Hence, it is suggested to the life insurance players to adopt optimum claim settlement practices so that they can maintain optimum efficiency to earn optimum earnings consistently.

 

Analyzing the impact of Claim Settlement management Practices of Public sector and select Private sector Life Insurance companies on their operating Efficiency and Profitability:

Effective claim settlement management practices are vital for the life insurance company’s survival and success in the insurance industry. Life insurance firm’s liquidity, marketability and Profitability are adversely affected with improper claim settlement practices. Therefore, analyzing the impact of claim settlement management practices of life insurance firms on their operating efficiency and profitability is necessary.

 

Correlation analysis was conducted for the pooled data by choosing the variables such as CSR (Claim Settlement Ratio), CRR (Claim Rejection Ratio), MS (Market Share), ROA (Return on Total Assets) and OEcrs1(Efficiency Score under CRS with 1^st I/O mix). CSR and CSR were considered as explanatory or independent variables which represent the claim settlement practices of life insurance firms. The profitability performance measures for the life insurer were ROA and MS. The correlation matrix was prepared to analyze the relationship between variables under the study.

 

The table-4 indicates that CSR was positively associated with ROA as well as MS and more over, it was statistically significant at 0.01 as sig.(P=0.001) < 0.01 for ROA and sig.(P= 0.002) < 0.01 for MS. Also, CSR was maintained statistically significant negative correlation with CRR (-0.822) and OEcrs1 (-0.466). Therefore, ROA was the dependent variable for testing the impact of claim settlement practices on the profitability of life insurers as it was universally endorsed popular measure of profitability.

 

The efficiency score of life insurers under CRS with 1^st input –output mix (OEcrs1) was selected as these score were not constant and not equal for any company in the study.CRR (Claim Rejection Ratio) of the life insurance firms was statistically significant negative association with CSR, MS and ROA but it was positively associated with OEcrs1 which was statistically significant at 0.05 level of significance. There were positive associations among the pairs of variables such as ROA and MS, ROA and OEcrs1 and OEcrs1 and MS. Therefore; CRR was highly correlated with CSR negatively.

 

Table-4: Correlation Matrix for pooled data of Claim Settlement Practices

Source: SPSS and *Significant at 0.05 level of significance and ** Significant at 0.01 level of significance

 

We can avoid multi-co linearity problem by dropping CRR as independent variable in the multiple regression analysis.

 

The impact of Claim settlement practice of =life insurance firms on their profitability was analyzed with ROA as dependent and CSR =used as independent variables under M-1 (model-1) by conducting multiple regression analysis with help of SPSS .The impact of Claim settlement practices of life insurance firms on their operating efficiency was analyzed with OEcrs1 as the dependent variable and CSR used as independent variables under M-2 (model-2) by conducting multiple regression analysis with the help of SPSS. The output of multiple regression analysis under M-1 and M-2 were presented in the table-4.1 and 4.1(a).

 

M-1: ROA = β₀ + β₁ .CSR + Ɛ

M-2: OEcrs₁ = β₀ + β₁ .CSR + Ɛ

Level (pooled data) as well as company level.

 

For Model-1: H_O1: The impact of claim settlement practices of select life insurers on their profitability is not significant statically.

 

H_1: The impact of claim settlement practices of select life insurers on their profitability is significant statistically.

 

For Model-2: H_O2: The impact of claim settlement practices of select life insurers on their operating efficiency is not significant statically.

 

H_2: The impact of claim settlement practices of select life insurers on their operating efficiency is significant statistically.

 

Table-4.1: Impact of Claim Settlement Practices of Life insurance firm on their Profitability and Efficiency (for pooled data)

Variable	Regression Coefficients (Beta’s)		Standard Error of Regression Coefficient(β1 )		“ t” Value		Sig.t
	M- 1	M-2	M-1	M-2	M-1	M-2	M-1	M-2
CSR	0.545	-0.466	0.031	0.003	3.731	-3.025	0.001**	0.005**
Constant (β0)	-0.10	1.006	0.027	0.003	-3.73	383.69	0.001**	0.0**
*Significant at 0.05 level of sig. & **Significant at 0.01 level of sig.

 

The table-4.1 reveals that the CSR had positive impact on the profitability of selected life insurance players as their regression coefficient of CSR (0.545) was positive and statistically significant as its sig.value (P= 0.001 <

 

0.01).The optimum or effective claim settlement practices were positive impact on their profitability. The claim settlement ratio was negatively influencing the operating efficiency of life insurers as their regression coefficient of CSR with beta value of -0.466 which was statistically significant as its sig.value (P= 0.005 < 0.01). The following hypotheses formulated were tested at industry level (pooled data) as well as company level.

 

 

Table-4.1(a): Model Summary

Source: SPSS, a. Predictors: (Constant) and ROA and TEs dependent variables for model-1 and 2. Note: * Significant at 0.01 level of significance for degrees of freedom (d.f): ʋ_{1 =} 2 and ʋ_{2 =} 32 and ** Significant at 0.05 level of significance.

 

The table-4.1(a) reveals that under M-1, F-cal = 13.92 should be more than F-critical value as sig.(P= 0.001) < 0.01. Ho1 is rejected and hence, H1 is accepted. Therefore, the impact of claim settlement practices of select life insurers on their profitability is significant statistically at 0.01level of significance.

 

Moreover, under model-2 (M-2), F-cal = 9.15 should be more than F-critical value as sig.(P= 0.005) < 0.01. Ho₂ is rejected and hence, H₂ is accepted. Therefore, the impact of claim settlement practices of select life insurers on their operating efficiency is significant statistically at one percent level of significance.

 

FINDINGS AND SUGGESTIONS:

·     It is observed that in the life insurers benefits payments, surrender values were large followed by death claims, maturity claims and annuities with regard to select private sector life insurance companies where as for LIC of India surrender values were large followed by death claims, Annuities or Pensions and maturity claims during the study.

 

·     Moreover, LIC of India was the consistent and top performer among the four benefit payments of death claims, maturity claims, annuity or pension payments and surrenders .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. The linear and compound growth rates of LIC of India in the four benefits payments were lower than select private sector a life insurer which indicates that there are greater prospects for growth and development of private life insures than the Public sector life insurance company. Hence, it is suggested to LIC of India (Public sector) and select Private sector life insurance companies to adopt bench mark standards in claim settlement practices so that they become globally competent enough for achieving their corporate goals and optimum claimants’ satisfaction.

 

·     LIC of India, the public sector life insurer has highest average claim settlement ratio of 95.28 %  with lowest reject ratio of 1.61 % during the study period of 2001-02 to 2012-13. LIC had lowest risk in CSR and CRR to the extent of 1.02 % and 1.07 % with high consistency in CSR and CRR  when compared with private sector life insurance companies. Public sector life insurance company was given first rank in both CSR and CRR where as ICICI P Life was given 2^nd rank in CSR and 3^rd rank in the CRR followed by Bajaj Allianz Life was given 3^rd rank in CSR and 2^nd rank in CRR, SBI Life was given 4^th rank in CSR and 5^th rank was given to HDFC Life insurance in both CSR and CRR. Therefore, it is observed that LIC of India was the outstanding player in the entire industry with good claim settlement practices. It has proved that it is a trusted Public Sector Life Insurance Company. High CSR and low CRR will have good positive impact on the market share and profitability performance of the insurance companies. When these are negative then they could have negative impact on the efficiency and profitability of the life insurer .Hence, it is suggested to the life insurance players to adopt optimum claim settlement practices so that they can maintain optimum efficiency to earn optimum earnings consistently.

 

CONCLUSION:

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. Therefore it is essential for the life insurance players to adopt effective claim settlement practices so that its operating efficiency and profitability can be enhanced to the optimum extent by achieving trade-off between underwriting policies premium and operating efficiency.

 

REFERENCES:

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6.       Laxman, Karver Dr.Shrikrishna. Principles of Life Insurance. Mumbai: Himalaya Publication House, 2009.

7.       Kutty k. Shashidharan (2008), “Managing Life Insurance”, Prentice Hall of India Pvt Ltd, New Delhi. .

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11.     www.licinida.com.

12.     www.idra.gov.in

14.    www.deaos.com.

 

 

 

 

 

Accepted on 16.08.2017                © A&V Publications all right reserved