Assessing Claim Settlement Dynamics in Indian Life Insurance with specific reference to LIC of India using Time Series and DEA

Abstract

Claim settlement is an essential aspect of life insurance, highly influencing an insurer's public perception, efficiency, and credibility. This report analyses the claim settlement practices of the Life Insurance Corporation of India (LIC), the nation's oldest insurance company, from 2006-07 to 2023-24. LIC has maintained a strong position in claim settlement, irrespective of the market liberalization and competition from technologically advanced private players. The research analyses key performance indicators, including the claim settlement ratio (CSR), claim repudiation ratio, claim pending ratio, and unclaimed claim ratio, using data from the Insurance Regulatory and Development Authority of India (IRDAI) and Life Insurance Corporation (LIC) of India Annual Reports. Time Series Regression and Mann-Kendall trend tests were used to identify significant temporal trends in the Claim Settlement Ratio and the Value of Claims Settled. Results indicate that LIC has continually achieved a high CSR, reaching 98.74% in FY 2021-22, despite rising mortality claims due to COVID-19. Both the time series regression (p-value = 0.0009) and Mann-Kendall trend test (Z-value = 3.18, p-value = 0.00146, Kendall’s Tau (τ) ≈ 0.556) reveal a statistically significant upward trend in LIC's Claim Settlement Ratio throughout the study period, indicating improving operational efficiency and customer service strategies. Additionally, Regression analysis has been conducted to provide an actual knowledge of how the quantum of claims settled and the rate of claim rejections affect the inflow of premium revenue. An output-oriented Malmquist DEA model was applied using DEAP software with Claim Settlement Ratio, Claim Rejected Ratio, Claim Unclaimed Ratio, and Claim Pending Ratio as inputs, and Net Premium Income as the output. This method determined the most efficient year within the study period by evaluating changes in technical efficiency and productivity over time. This analysis underscores LIC's commitment to fulfilling its contractual obligations, reinforcing policyholder trust, and its institutional credibility within the Indian insurance landscape.