«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
To speed up the settlement process, TYM, CARD MBA and MUSSCO have created decentralized systems that allow branches or agents to pay claims based on receipt of full and proper documentation. Most of the others, including UMSGF, VimoSEWA and Tata-AIG, have a more centralized system that requires presentation of the documentation to the head office claims department for processing. Often this processing includes sample testing of the documentation for validity, and sometimes, as with VimoSEWA, a review of the claim by a claims committee (see Chapter 4.5). Medical claims may also be subject to a clinical review as at VimoSEWA and Microcare in Uganda, which is intended to both confirm appropriate care and control over-treatment.
Many microinsurers have their management deliver the claims settlements to the beneficiaries. This activity enhances their public image and promotes the scheme and its benefits to their members. The resulting demonstration effect, whereby others are enticed to join the insurance scheme because they see that claims are actually paid as promised, is a critical element in creating an insurance culture since it enhances trust between the insurer and prospective policyholders.
Disability claimants frequently express dissatisfaction with settlements because of disputes on the extent of the disability. TUW SKOK has developed an appeals process where beneficiaries can, and do, appeal settlements.
During the first nine months of 2003, the board considered 69 claim complaints, in respect of which 16 decisions were modified or reversed, 48 were upheld, and five were still in process. Likewise, VimoSEWA has a grievance committee to which people can appeal their settlement.
3.2 Claims rejections As underwriting requirements are frequently applied to claims submissions rather than initial policy applications, rejections can be an issue for microinsurance. In the case studies, claims rejection rates, where available, were generally between 5 and 22 per cent. The higher rates reported by TUW SKOK’s property insurance, MUSCCO and La Equidad – 22, 15, and 14 per cent respectively – may reflect better record-keeping at the credit union-related 228 Microinsurance operations microinsurers. It may also reflect a higher reliance on sorting out underwriting issues through claims. The high rate at TUW SKOK is directly related to water damage claims for which TUW SKOK has implemented a 15-day waiting period to counter a problem with people purchasing policies after their property was damaged by water leaks. This also relates to TUW SKOK’s implementation of a US$27 deductible to minimize frivolous claims.
Claims rejections often occur on several levels, leaving the actual rejection rates rather ambiguous. For Madison Insurance, with a rejection rate of about 5 per cent, it was possible to reject the claims at various levels, including the field officers, their supervisor, head office management or the insurer’s claims department. It is only the latter that actually tracks the rejections, but it is likely that most questionable submissions have already been rejected by the time they get to the claims department.
The main reasons for rejecting health claims are related to policy exclusions and the client not understanding, or not being aware of, such exclusions. For example, with VimoSEWA, certain medical procedures and medications are not covered; because members are submitting for reimbursement, there is significant potential for claim rejections. VimoSEWA has worked to combat this through extensive training of its field agents.
Another common reason for rejections among microinsurers has been that policyholders do not realize that they must pay premiums every year to keep their policy in force, so they often believe that they are still covered even though the policy was not renewed. With many schemes, policyholders are not sufficiently informed or they have forgotten the details.
Delta Life has a rejection problem that is common among microinsurers with long-term policies – lapses. For the three years including the period 2000 to 2002, only about 43 per cent of its policies were in force. Thus, on the death of more than half of its policyholders, there would actually be no insurance cover, although the beneficiary would probably receive some of the savings accumulated over the years. It is likely that growth has been restricted by the negative public image of these rejections.
To reduce the rejection rates, two improvements are needed. First, policyholders must be fully knowledgeable about the product they are buying.
Besides providing client education, microinsurers should be giving their customers a brochure or simple policy document that states the dates of coverage, the benefits and the claims processes. Second, microinsurers must deal with the root causes of non-renewals and lapses; it is sometimes necessary to develop alternative premium payment options to address the variable and often seasonal nature of household income (see Chapter 3.3).
Claims processing 229
3.3 Time to settlement On average, settlement times can be anywhere from seven to 60 days, with the longest time to settlement about two years. The average of those case study insurers who were able to provide this information was 24 days.
Claims settlement is often delayed by critical snags in the process. At Delta Life, the snag is simply the policy of the institution itself, since it has not made timely settlements a priority (see Box 41). An estimated 10 per cent of death claims take six months or more to be settled because of problems with the mail, manual data systems, insufficient documentation and the centralization of claims processing.
The many stops in claims settlement at Delta LifeBox 41
It is interesting to note the number of staff involved in checking and approving a claim, which has a direct impact on claim settlement efficiency as well as cost. At Delta Life, besides the three people in the unit office who review the claim, there are one or two people from the ZOC’s servicing department, and then at least three at head office, along with the MD if the claim is above US$180. This does not even include the role played by the control and compliance department which ensures that all required signatures are on the form. It is no wonder then that claims settlement takes at least a month, and often much longer. In the future, Delta hopes to decentralize the entire claims process to the ZOCs, but such a change does not appear imminent.
Source: Adapted from McCord and Churchill, 2005.
Several of the case study institutions aim to achieve “rapid” claims payments. The partnership document of Madison Insurance gives the commitment that it “shall expeditiously settle claims within a maximum of seven working days”. Shepherd’s insurer has committed itself to settling claims within 15 days. For ServiPerú, the government has taken the lead by mandating that all claims be paid within 30 days. AIG Uganda has agreed to pay claims within 14 days, though its average is much longer. An interesting alternative approach to assurances on claims was implemented by Gemini Life Insurance Company in Ghana; if it takes longer than 14 days to settle a complete claim, a penalty of 25 per cent of the claim amount will be payable to the beneficiary. Microcare provides a similar offer.
Delays with LIC’s claim settlements were unacceptable to the clients of VimoSEWA, as they were often taking one month or more after all documentation was submitted. VimoSEWA management decided to explore alternatives. Aviva Insurance was selected to replace LIC in 2005 because it permitted VimoSEWA to pay the life claims, reducing reimbursement time to one week. For health and asset insurance, VimoSEWA has worked with the private, non-life insurer ICICI Lombard since 2003. This relationship improved claims settlement through the provision of a reimbursement fund, out of which VimoSEWA pays the claims and is then reimbursed by the insurer.
It is when they submit a claim that policyholders find out if their premium has been well spent. All clients expect claims to be paid quickly. However, “quickly” means very different things to different people. For example, in Zimbabwe (see Box 42) or South Africa, where people have become used to informal burial societies, paying claims quickly may mean within one day;
whereas in Zambia, where burial societies are less prevalent, quickly means Claims processing 231 within a week or two. These different perceptions have a huge effect on the claims process, the cost of delivery and the level of client satisfaction.
Zambuko Trust, a Zimbabwean MFI, conducted market research to explore possible insurance opportunities. The research revealed that over half of Zambuko’s clients had contributed to an informal burial society. These burial societies are organized by a person in the community who collects small regular contributions from members. The contributions are saved in a bank (or sometimes in a tin) and in the event of the death of a member or someone in their family, the burial society pays a sum from the saved contributions.
Due to the limited number of people in each burial society and the limited geographical scope, the claims are often paid within hours of the death. Since these burial societies are common in Zimbabwe, most low-income people are familiar with funeral insurance and expect claims to be paid within 24 hours.
Source: Adapted from Leftley, 2005.
Efficient controls are critical to any insurance product. As the experience at Delta illustrated, having more people review a claim does not necessarily lead to better control. There are significant advantages in having claims payment decisions close to the beneficiary. The success of the India examples shows that even with a regulated insurer as the backbone of the scheme, durations can be reduced by creating structures within the delivery channel to facilitate these transactions. However, the data in Table 1 shows that MFIs are not always the best arbiters of client needs, and thus insurers must ensure that the final client is being satisfied.
4 Controls Insurers are not successful just because they can get claims paid quickly. They must ensure that the claims are legitimate and correspond with the policy requirements. For example, for an accidental death claim, they do not just need
a document from the police confirming death, but they must also ensure that:
Insurers make promises to cover risk events under certain circumstances.
Their policyholders, and indeed even their intermediary agents, are motivated to try to cheat this system, especially if the policyholders are not the owners of the scheme. If insurers are to stay in business, they must maintain strong yet efficient controls.
4.1 Claims adjustment Some microinsurers, like TUW SKOK, work with professional claims adjusters. TUW SKOK does this with property claims where valuations may be rather complicated. Those offering health or disability insurance often use physicians to review and adjust claims. For life insurance, most microinsurers utilize a combination of paperwork and the relationships of the intermediary agents. TYM for example, uses the local Woman’s Union to help with claims adjustment; MUSCCO uses its SACCO partners.
MUSCCO has found claims adjustment a challenge because Malawi lacks a national identification system. Consequently, it is unable to confirm that the claimant is actually a policyholder. Several institutions overcome this, or reinforce the confirmation of identity, by requiring agents who know the deceased to actually view the body. CARD MBA uses its volunteer coordinators, selected from among their membership, to visually confirm the loss.
Others, like VimoSEWA, require a photo of the deceased. Opportunity International Bank Malawi overcame the lack of national identity cards by introducing smartcards that record clients’ fingerprints.
Confirming the cause of death as HIV/AIDS has proven elusive, especially in high-prevalence countries, as illustrated in Box 43.
Claims adjustment and HIV/AIDS Box 43
other opportunistic disease. These factors basically render the unpopular HIV/AIDS exclusion ineffective. Thus, the exclusion has been removed from AIG Uganda and MUSCCO policies.
Adapted from Enarsson and Wirén, 2005; and McCord et al., 2005a.