IRDAI Seeks Uniform Claim Norms To Improve Transparency In Insurance Sector

New Delhi, May 25 (KNN) The Insurance Regulatory and Development Authority of India (IRDAI) has directed the non-life insurance industry to arrive at a standard definition of a ‘claim’ and a uniform methodology for calculating claim settlement ratios across various lines of business — a move aimed at ending a long-standing practice of inconsistent reporting that has obscured the true picture of insurer performance.

The Problem: Definitions That Don't Add Up

Claim settlement ratio is a key metric used by consumers and analysts to assess an insurer's financial health and customer service standards. However, different companies have been applying different definitions, making comparisons unreliable and, in some cases, misleading.

The core inconsistency lies in when a claim is registered and what qualifies as ‘settled’. Some insurers register a claim at the first instance of intimation, while others do so only after establishing liability under the policy. More critically, some companies count claims closed due to non-submission of documents, or claims rejected as falling outside policy scope, as ‘settled’ — a practice that inflates settlement ratios without reflecting actual customer outcomes.

Industry Response

"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. 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," an industry source told TOI.

What a Claim Should Mean

KK Srinivasan, former Member (Non-Life) at IRDAI, argued that in practical terms, a claim should only be treated as settled when the client confirms acceptance of the resolution. Until that point, he said, it remains pending or disputed. 

He further noted, "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," as quoted by TOI.

The issue is compounded by the use of discharge vouchers — documents that insurers ask claimants to sign acknowledging full and final settlement — even in cases where the customer remains dissatisfied.

Broader Implications for the Sector

The definition of a claim also has direct implications for the incurred claims ratio, which determines underwriting profitability. A broad definition would require insurers to set aside reserves for every demand made, even where no active cover exists — a significant financial consideration.

(KNN Bureau)