Which are the top ten life insurance companies in India?

First, the results!

Group A: SBI Life, HDFC Life and Aegon Religare.

Group B: LIC, ICICI Prudential, Max Life and Canara HSBC.

Group C: Bajaj Allianz, Tata AIA and IDBI Federal.

One important point to note is that Aegon, Canara and IDBI are all very new (launched in 2007-08) and their performance may vary in future. One needs to keep watching them.

Middle 6: Aviva Life, Bharti AXA, Birla Sunlife, Kotak Mahindra, PNB Metlife and Star-Union Daiichii.

Bottom 8: DHFL Pramerica, Edelweiss Tokio, Exide Life, Future Generali, India First, Reliance Life, Sahara Life and Shriram Life.

Now, the analysis.

The overall scenario:

Life insurance is arguably the most socialist financial instrument conceived in a capitalist system. A number of people form a group and pool in their resources (premiums) to compensate for a possible loss of life of one or more members of the group.

In practice, this works indirectly and the insurance company acts as an intermediary. It collects the premiums from the participating individuals and settles the unfortunate claims made by their nominees. Being a for-profit organization, it also attempts to profit from this activity by charging a premium slightly higher than that warranted by the prevailing mortality rates and overhead expenses.

The problems are caused, as usual, by the human greed. There are many companies that try to make more than a healthy profit. Worse, there are many individuals who try to defraud the insurance companies by getting a policy issued by making false declarations and then go on to fake claims. There is a huge syndicate of such groups operating in many parts of the country. This causes the companies to go after even the genuine claimants and it results in a lot of sad rejections and prolonged litigation.

Crushed between the two powerful groups is the common man like us.

Honesty Ratio:

For a high value insurance (anything above 10L coverage, basically all fresh term insurance will most likely be high value), the honest appraisal of the claim is the most significant factor.  Any for-profit insurer will try to maximize its profit while minimizing its costs. Therefore, it is always likelier that a high value claim is subjected to higher degree of scrutiny and consequently faces a higher chance of rejection. However, this should not be taken to the extreme and the company should not reject most of the high value claims at the slight possibility of a misrepresentation of facts unless a fraud is obvious.

Insurers, however, try to show a good claims settlement performance by accepting most of the low value claims and also save their money by rejecting as many high value claims as possible. Fortunately, apart from the number of claims made and paid, they are also required to disclose the amount of money claimed and actually paid out.

If the high values claims are not processed honestly, and this practice is taken to the extreme, the value-wise claim settlement ratio will diverge too much from the count-wise claim settlement ratio.

The ratio of these two ratios is what I call the “honesty ratio” and this number should be as high as possible, preferably close to unity. A low value clearly indicates some creative handling of high value claims and one must be vigilant about such companies especially if one is taking a big coverage policy.

Ticket Size:

There are many types of insurance products in the market and term insurance is the least popular and most useful so far (these are not independent phenomena, what is good for the policyholder is not so good for his agent). The term insurance is the cheapest and purest form of insurance. It also, usually, has a much larger sum assured. Therefore, the claim sizes are also on the higher side.

The size of average claim made and average claim paid can be easily calculated from the basic data. A company that deals with higher ticket sizes is either new or deals more with term insurance (or both). In any case, if you are going for a 20L policy, you would want to deal with a company which has seen such claim sizes (and accepted those). Therefore, the average ticket size also matters.

Methodology:

There are a total of 24 life insurance companies in India (as of October 2015). I calculated their ranks based on three parameters: (1) count-wise claim settlement ratio (2) value-wise claim settlement ratio and (3) honesty ratio, or the ratio of (2) to (1). The sum of the three scores was used to rank them further. This ranking indicates which insurers are honestly processing the claims and also accepting highest fraction of the claims made. This in itself can be taken as a measure of the insurer’s quality.

However, I further calculated the ranks based on claim size and paid size. The sum of these five scores gives a better indication especially for term insurance. I discarded the bottom 8 based on this final ranking. From the remaining 16, I further discarded the bottom 6 based on their honesty ratio alone.

It should be noted that these numbers vary year-on-year simply because the mix of claims made to a company do so. Therefore, it makes sense to analyse the data for a number of years. I have considered two data sets from the IRDA annual reports: (1) numbers from 2011-14 annual reports and (2) numbers from 2008-2014 annual reports. Coincidently, both sets throw exactly the same ten winners.

Final factor:

IRDA prohibits the insurers from repudiating the claims on the policies that are older than two years except on the ground of fraud. The insurers are required to disclose (form L-40) the number of repudiated claims and the share of 2- and 2+ year old policies in those every quarter. Ideally, one would want to see a very low number of 2+ year old policies getting repudiated.

I calculated the share of less than 2 year old policies in all repudiated policies during years 2011-14. Adding the rank based on this number to the original score and scaling up the contribution of honesty ratio by a factor of two, I reached to the final table as follows:

Name of insurer	Value Ratio - 3Y	Value Ratio - 6Y	Share of 2- year old	Honesty Ratio - 3Y	Honesty Ratio - 6Y	Combo Score	Top-10 Rank
SBI Life	91.6%	90.7%	91.0%	98.0%	101.5%	49.0	1
Aegon Religare	69.3%	66.6%	97.3%	96.6%	97.2%	48.5	2
HDFC Standard	87.1%	86.5%	96.6%	91.5%	92.1%	48.5	3
Canara HSBC	80.9%	77.0%	82.6%	94.4%	94.9%	41.0	4
LIC of India	95.4%	95.1%	47.5%	97.6%	97.9%	41.0	4
ICICI Prudential	87.0%	87.2%	92.7%	90.9%	93.5%	38.5	6
Max Life	86.1%	80.8%	83.3%	92.9%	93.8%	38.0	7
IDBI Federal	73.7%	66.6%	88.4%	91.2%	88.1%	31.1	8
Bajaj Allianz	81.4%	82.0%	88.8%	90.3%	91.8%	26.1	9
Tata AIA	76.6%	74.2%	83.4%	89.1%	91.0%	23.5	10

 

2011-12/2012-13/2013-14:

Name of insurer	Accept Ratio	Value Ratio	Honesty Ratio-1	Score-1	Claim Size	Paid Size	Score-2	Total Score	Final Rank
Aegon Religare	71.8%	69.3%	96.6%	32	6.29	6.07	46	78	5
Aviva Life	87.2%	71.3%	81.7%	27	4.59	3.75	42	69	12
Bajaj Allianz	90.1%	81.4%	90.3%	49	1.67	1.51	10	59	16
Bharti AXA	88.5%	74.0%	83.7%	33	2.69	2.25	27	60	15
Birla Sunlife	87.2%	75.8%	86.9%	38	3.16	2.75	35	73	9
Canara HSBC	85.7%	80.9%	94.4%	49	4.45	4.20	43	92	1
DHFL Pramerica	24.2%	22.6%	93.4%	21	3.08	2.88	35	56	17
Edelweiss Tokio	57.3%	37.3%	65.1%	5	13.17	8.58	48	53	18
Exide Life	85.0%	70.4%	82.8%	22	1.61	1.34	8	30	23
Future Generali	71.3%	60.7%	85.2%	18	2.07	1.76	14	32	21
HDFC Standard	95.2%	87.1%	91.5%	61	2.82	2.58	31	92	1
ICICI Prudential	95.7%	87.0%	90.9%	59	2.09	1.90	16	75	6
IDBI Federal	80.8%	73.7%	91.2%	33	4.37	3.99	41	74	8
India First	74.4%	60.2%	81.0%	13	2.58	2.09	24	37	20
Kotak Mahindra	91.6%	77.2%	84.2%	41	2.93	2.47	31	72	11
Max Life	92.7%	86.1%	92.9%	58	2.53	2.35	26	84	3
PNB Metlife	85.4%	74.3%	87.0%	35	3.96	3.45	38	73	9
Reliance Life	84.3%	71.4%	84.6%	26	1.32	1.11	6	32	21
Sahara Life	83.8%	81.6%	97.3%	49	0.93	0.91	2	51	19
SBI Life	93.5%	91.6%	98.0%	68	1.79	1.76	12	80	4
Shriram Life	66.7%	53.4%	80.1%	8	2.49	1.99	21	29	24
Star Union Daiichii	90.4%	77.9%	86.2%	44	2.25	1.94	18	62	13
Tata AIA	86.0%	76.6%	89.1%	40	2.43	2.16	22	62	13
LIC	97.8%	95.4%	97.6%	71	1.04	1.02	4	75	6
Private Sector	88.8%	79.2%	89.2%		2.15	1.91
Whole Industry	96.5%	91.2%	94.6%		1.20	1.13

 

2008-09 through 2013-14:

Name of insurer	Accept Ratio	Value Ratio	Honesty Ratio-1	Score-1	Claim Size	Paid Size	Score-2	Total Score	Final Rank
Aegon Religare	68.5%	66.6%	97.2%	33	6.20	6.02	46	79	6
Aviva Life	84.8%	72.8%	85.8%	33	3.39	2.91	38	71	10
Bajaj Allianz	89.3%	82.0%	91.8%	57	1.62	1.49	10	67	12
Bharti AXA	85.5%	73.0%	85.4%	35	2.50	2.14	28	63	13
Birla Sunlife	89.1%	78.1%	87.7%	46	2.81	2.47	34	80	4
Canara HSBC	81.2%	77.0%	94.9%	44	4.45	4.22	44	88	2
DHFL Pramerica	25.5%	23.4%	91.6%	17	3.06	2.80	36	53	17
Edelweiss Tokio	57.3%	37.3%	65.1%	5	13.17	8.58	48	53	17
Exide Life	85.6%	72.9%	85.1%	34	1.60	1.37	8	42	19
Future Generali	66.1%	56.0%	84.7%	13	2.09	1.77	18	31	23
HDFC Standard	94.0%	86.5%	92.1%	61	2.48	2.28	28	89	1
ICICI Prudential	93.3%	87.2%	93.5%	62	1.74	1.63	13	75	8
IDBI Federal	75.6%	66.6%	88.1%	27	4.17	3.67	42	69	11
India First	74.8%	61.1%	81.7%	14	2.50	2.04	26	40	21
Kotak Mahindra	89.3%	78.3%	87.7%	50	2.78	2.44	32	82	3
Max Life	86.1%	80.8%	93.8%	54	2.38	2.23	26	80	4
PNB Metlife	83.2%	70.1%	84.2%	22	4.16	3.51	40	62	15
Reliance Life	84.4%	71.6%	84.8%	28	1.26	1.07	6	34	22
Sahara Life	71.5%	70.1%	98.0%	38	0.94	0.92	4	42	19
SBI Life	89.3%	90.7%	101.5%	66	1.68	1.70	13	79	6
Shriram Life	57.9%	48.9%	84.4%	10	2.06	1.74	16	26	24
Star Union Daiichii	88.6%	77.2%	87.1%	43	2.14	1.86	20	63	13
Tata AIA	81.5%	74.2%	91.0%	38	2.23	2.03	22	60	16
LIC	97.1%	95.1%	97.9%	70	0.92	0.90	2	72	9
Private Sector	87.2%	79.0%	90.6%		1.97	1.78
Whole Industry	95.9%	91.2%	95.2%		1.06	1.01