CONSUMERS’ GRIEVANCE REDRESSAL SYSTEM IN THE INDIAN

LIFE INSURANCE INDUSTRY - AN ANALYSIS

ABSTRACT

Reckoned among the fastest growing industries, the life insurance industry of India has 23
license-holders running their business in this sector. The Life Insurance Corporation of India
(LIC), which is the only player in the public sector, contributes over 70% to the business. The
remaining area is covered by the 22 private sector companies. Life Insurance Corporation of
India (LIC) was established on 1st September, 1959, with the objective of spreading life
insurance much more widely and in particularly to the rural areas with a view to reach all
insurable persons in the country, providing them adequate financial cover at a reasonable cost.
LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance
and is moving fast on a new growth trajectory surpassing its own past records. The study would
provide some insights into the areas, specifically consumer protection and the awareness with
reference to the grievances settlement operations of the Life Insurance Industry in India. The
study is diagnostic and exploratory in nature and makes use of secondary data. The study finds
and concludes that the Life Insurance Industry have significantly improved their performance
with regard to redress the grievances of the insurance customers (policyholders).

KEYWORDS: Life Insurance Corporation, Grievance Cell, Policyholders and

The Insurance Regulatory and Development Authority ( IDRA).
 I. INTRODUCTION

Financial institutions are the tools to mobilize savings and encourage investments by directing
them to the productive channels and occupy a key position in the modern global economy.
Financial institutions are of two types in general, namely Depository Institutions (e.g., Banks)
and Non-Depository Institutions (e.g., Insurance Companies) and both serve financial markets.
After banking, insurance is the most important segment of the financial sector, capable of
providing huge amounts of funds for the economic development of the country. The
contemporary era is marked as the era of consumers. No country can knowingly or unknowingly
disregard the interest of the consumers. This can be argued on the basis of fast enactment of
consumer protection laws in almost all part of the world. Apart from the consumer protection
laws in developed world, it could find the accelerated rate of lawmaking for consumers in
developing countries like Thailand1, Sri Lanka, Korea, Mongolia, Philippines, Mauritius , China,
Taiwan, Nepal, Indonesia, Malaysia and other countries. India is not an exception to this rule.
The Consumer Protection Act, 1986 is one of the examples that are to be treated as a milestone
in the history of socio-economic legislation to protect the interests of the consumers in India. The
legislation to protect and advance the interest of consumers in India was finally materialized after
in-depth study of consumer protection laws operating in other countries and in consultation with
representatives of consumers, trade and industrial segments of India and abroad. In order to
better serve the interests of the consumer and to settle their disputes, consumer council and other
authoritative mechanism are also being established. In an insurance industry, the Consumer
Affairs Department of IRDA handles policyholders’ (insurance consumers) grievances. The
Grievance Cell looks into the complaints from policyholders against life and non-life insurance
companies.

II. STATEMENT OF THE PROBLEM

The Insurance Regulatory and Development Authority (IRDA) has been established to regulate
the business of both the life and non-life insurance in India. While framing the regulations for the
insurers, the Authority keeps in mind the primary objectives of protecting the interests of and
secure fair treatment to policyholders (insurance consumers). Consistent with this, the Authority
has set up Grievances Redressal Cell and tries to ensure speedy redressal of the complaints
received from the policyholders. Policyholders who have complaints against insurers are
required to first approach the Grievance/Customer Complaints Cell of the concerned insurer
(insurance companies).If they do not receive a response of the company, they may approach the
Grievance Cell of the IRDA. Many researchers have attempted to make a contribution in the
field. Among all these researchers, no one has attempted to make the study of appraisal of the
life insurance industry in terms of grievance settlement exclusively. It is against this backdrop
that the present study has been undertaken to fill up this gap.

III. OBJECTIVES OF THE STUDY

The primary objectives of the study are;

(a) To address the consumer awareness with regard to the grievance redressal machinery in the
insurance business;
(b) To analyze the performance of the LIC in terms of grievance settlement operations;

(c) To analyze the performance of the private sectors’ life insurance business in terms of
grievance settlement operations;

(d) To give suggestion for the improvement of the grievance settlement operations in the Life
insurance Industry in India.

IV. REVIEW OF LITERATURE

A considerable amount of research has been done on the working and performance of insurance
industry in India, by academicians and researchers. The literature obtained by investigators, in
the form of reports of various committees, commissions and working groups established by the
Union Government, the research studies, articles of researchers, insurance officials and news, is
briefly reviewed in this part.

Mathur, N.D (2002) in his study conclude that competition in insurance is one aspect of the past
liberalization scenario, the other aspect would be the public and private sector companies
working together to ensure the healthy growth and development of the sector.

FORTE (Joint Venture between FICCI and ING Insurance) in collaboration with Insurance
Regulatory Development Authority. (2003) has organized a Conference on 'Consumer
Awareness: Insurance Sector' at Federation House, New Delhi discussed IRDA (Protection of
Policyholders' Interests) Regulations, 2002 and the changing consumer awareness / expectations
from the insurance industry, post liberalization, and how far they have been met with by the
industry.

Dr. Narayana Rao, S.B. and Dr. Madhavi, C.(2006) in their study analyzed the performance of
the insurance industry in India and concluded that Government sector should further improve
their product varieties and attract schemes to compete with the private sector and also change
their attitude further towards service to survive in the market.

Vanniyarajan, T. & Balasenthil, R. S. (2008) in their study analyzed the various quality
dimensions in the life insurance market.

Vara Praad & Murali Krishna (2009) in their study attempts to analyze the success of insurance
business depends on the role played by the intermediaries and changed marketing strategies to
suit the customer needs.

Sorab sadri (2009) in his study discussed the social image in a highly competitive market where
even foreign players are steadily entering the domestic scene, people management expertise is
inevitable to sustain the Indian life insurance industry.

Syed Ibrahim, M. (2009) in his study discussed the growth and port-folio of investment of the
Life Insurance Corporation of India.
Wenyong Tian & Dongmei Li (2011) in their study analyzed the influencing factors of rural
insurance salesman’s sales performance in China by applying the Multiple Ordered and
Classification Logistic Model.

Monica Suri (2011) in her study attempts to analyze the market share of the Quarts insurances
and concludes the insurance sector in India has come to a position of very high potential and
competitiveness in the market.

IV. HYPOTHESES OF THE STUDY

Hypotheses framed for the study are as follows;

(a) There is no significant difference in grievance settlement operations of the public and
private insurers (H0);

(b) There is significant difference in grievance settlement operations of the public and private
insurers (H1);

V. METHODOLOGY OF THE STUDY

Methodology describes the research route to be followed, the instruments to be used, universe
and sample of the study for the data to be collected, the tools of analysis used and pattern of
deducing conclusions.

SAMPLE SELECTION

For the purpose of the present study, there are 23 insurance companies (life insurers) that have
been included for the present study. (Total private insurance companies is 22 and only one public
sector company-LIC, operating as of 30th September, 2010)

DATA COLLECTION

The present study is diagnostic and exploratory in nature and makes use of secondary data. The
relevant secondary data has been collected mainly through the data bases of Insurance
Regulatory Development Authority of India (IRDA), Reserve Bank of India (RBI), various
reports and other studies. Various insurance related journals have also been referred to.

PERIOD OF THE STUDY

The study period is recent five years starting from the year 2005-06 to the year 2009-10.

TOOLS USED

In order to analyze the data and draw conclusions on this study, various statistical tools like
Descriptive Statistics and Paired-Samples t-Test have been used through EXCEL and SPSS
Software.
LIMITATIONS OF THE STUDY

The study, as limitations, is confined only to settlement of complaints of the insurance

consumers (policyholders) in an Indian life insurance industry.

VI. ANALYSIS AND DISCUSSION

REDRESSAL OF GRIEVANCES OF THE INSURANCE CONSUMERS-(PUBLIC

SECTOR)

The main objectives of the consumers protection is to ensure the better protection of consumers
and is intended to provide simple, speedy and inexpensive redressal to the consumers’
grievances. The Grievances Cell of the Authority (IRDA) receives grievances from the
policyholders against insurance companies. Such complaints are forwarded to the companies for
resolution at their end. The insurance companies are required to keep the Grievances Cell of
IRDA informed about the status of respective grievances and whether the complaints have been
resolved or otherwise. Table 1 gives the perspective of the complaints received by the Authority.

TABLE-1

GRIEVANCES SETTLEMENT OPERATIONS OF THE PUBLIC INSURER (LIC)

Years Total Number of Resolved During the Outstanding at the

Complaints Received Year End of the Year

2005-06 1843 467 1376

(100%) (25.3%) (74.7%)

2006-07 1730 1533 197

(100%) (88.6%) (11.4%)

2007-08 848 163 685

(100%) (19.2%) (80.8%)

2008-09 1166 980 186

(100%) (84%) (16%)

2009-10 792 642 150

(100%) (81%) (19%)

Mean 1275.8000 757.0000 518.8000

 Standard Deviation 489.16889 524.89666 527.43218

C.V (%) 38.34 69.33 101.66

Source: Annual Reports, IRDA, Govt of India.

It is observed from the above table that the total number of complaints received have been
decreased from 1843 in 2006 to 848 in 2008.However it increased to 1166 in 2009 and again it
decreased to 792 in 2010, with the mean value 1275.8000. The trends of complaints resolved
have gone up from 467 in 2006 to 642 in 2010. The year 2007 registered higher percentage
(88.6) of complaints resolved. It is very encouraging sign that the percentage of outstanding
complaints have been declined from 74.7 in 2006 to 19 in 2010. Complaints received in respect
of Public Sector (LIC) is quite consistent as its CV (38.34%) is less than that of the complaints
resolved and its outstanding at the end of the respective years.

REDRESSAL OF GRIEVANCES OF THE INSURANCE CONSUMERS-(PRIVATE

SECTORS)

Apart from the single public sector (LIC) in the life insurance industry, there are many
private sectors are playing in the country. Total number of private life insurance companies is 22,
operating as of 30th September, 2010. Every consumer has right to seek redressal against the
unscrupulous exploitation and right to fair settlement of the genuine grievances of the consumer.
Consumers must make complaint for their genuine grievances. Many a times, their complaint
may be small value but its impact on the society, as whole, may be very large. The right to seek
redress is set out in the Preamble to the Constitution of India, wherein it has been declared that
people has the right to strive for justice, social, economic and political and equality of
opportunity. The grievances settlement operation of the private insurers have been portrayed in
table 2

TABLE-2

GRIEVANCES SETTLEMENT OPERATIONS OF PRIVATE INSURERS

Years Total Number of Resolved During the Outstanding at the

Complaints Received Year End of the Year

2005-06 673 270 403

(100%) (40%) (60%)

2006-07 910 808 102

(100%) (88.8.%) (11.2%)

2007-08 1508 1176 332

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 (100%) (78%) (22%)

2008-09 1645 1373 272

(100%) (83.5%) (16.5%)

2009-10 2115 1870 245

(100%) (88.4%) (11.6%)

Mean 1370.2000 1099.4000 270.8000

Standard Deviation 580.32379 601.53288 112.23057

C.V (%) 42.35 54.71 41.44

Source: Annual Reports, IRDA, Govt of India.

In the table 2, it is exhibited that the total number of complaints received has been increased
from 673 in 2006 to 2115 in 2010.The increase over the period of time is 3.14.

During the period under reference the authority has been able to mark a rising trend in its
settlement of grievances from 270 in 2006 to 1870 in 2010. The IRDA has been successful to
manage the outstanding complaints at the end of each year. The outstanding complaints at the
end of the year in respect of Private Sectors is quite consistent as its CV (41.44%) is less than
that of the complaints received and resolved.

Paired-Samples t-Test was performed to determine whether there is significant difference in

performance of total complaints received in respect of public and private sectors.

The hypotheses framed are as follows:

(a) There is no significant difference in performance of total complaints received in respect of

public and private sectors (H0);

(b) There is significant difference in performance of total complaints received in respect of

public and private sectors (H1);

The test results are given in Tables-3.

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 PAIRED SAMPLES STATISTICS

Mean N Std. Deviation Std. Error Mean

Pair 1 VAR00001 1.5000 10 .52705 .16667

VAR00002 1323.0000 10 508.43179 160.78025

PAIRED SAMPLES CORRELATIONS

N Correlation Sig.

Pair 1 VAR00001 & VAR00002 10 .098 .788

PAIRED SAMPLES TEST

Paired Differences

Mean Std. Deviation Std. Error Mean

Pair 1 VAR00001 - VAR00002 -1321.50000 508.38049 160.76403

PAIRED SAMPLES TEST

Paired Differences

95% Confidence Interval of

the Difference

Lower Upper t Df Sig. (2-tailed)

Pair 1 VAR00001 - -1685.17349 -957.82651 -8.220 9 .000

VAR00002

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Tables above show the value two tail significance is less than .05 (p<.05), as such the difference
between means is significant. The output indicates that there is a significant difference in
performance of grievance settlement operations in terms of total complaints received with t (9)
=8.220, p<.05.

Paired-Samples t-Test was performed to determine whether there is significant difference in

performance of complaints resolved in respect of public and private insurers.

The hypotheses framed are as follows:

(a) There is no significant difference in performance of complaints resolved in respect of public

and private sectors (H0);

(b) There is significant difference in performance of complaints resolved in respect of public

and private sectors (H1).

The test results are given in Tables-4.

PAIRED SAMPLES STATISTICS

Mean N Std. Deviation Std. Error Mean

Pair 1 VAR00001 1.5000 10 .52705 .16667

VAR00002 928.2000 10 561.99324 177.71787

PAIRED SAMPLES CORRELATIONS

N Correlation Sig.

Pair 1 VAR00001 & VAR00002 10 .321 .366

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 PAIRED SAMPLES TEST

Paired Differences

Mean Std. Deviation Std. Error Mean

Pair 1 VAR00001 - VAR00002 -926.70000 561.82422 177.66442

PAIRED SAMPLES TEST

Paired Differences

95% Confidence Interval of

the Difference

Lower Upper t Df Sig. (2-tailed)

Pair 1 VAR00001 - -1328.60484 -524.79516 -5.216 9 .001

VAR00002

Tables above show that the value of two tail significance is less than .05 (p<.05), as such the
difference between means is significant. The output indicates that there is a significant difference
in performance of grievance settlement operations in terms of complaints resolved in respect of
public and private insurers with t (9) =5.216, p<.05.

VII. FINDINGS AND SUGGESTIONS

The analysis and discussion in the proceeding pages reveals the following findings and
suggestions:

Liberalization has brought a lot of competition among the life insurance companies in
India. Consumers (policyholders) remain the most important centre of the insurance
sector. After the entry of private and foreign insurers, the industry is seeing a lot of
competition and thus improvement of the consumer service.

The LIC has succeeded in resolving consumers grievances when compared to the private
insurers. The number of complaints received in 2010 is very low when compared to the

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 year 2006. The LIC being the only public insurer is quite consistent in receiving the
complaints from the policyholders.

So far as outstanding complaints at the end of the year, private insurers have shown
significant performance. Compared to the complaints received and resolved, private
insurers are quite consistent in terms of outstanding complaints at the end of the year. The
result of the t-test revealed that there is a significant difference in performance of both the
complaints received and resolved in respect of the public and private insurers in the life
insurance industry.

LIC, being the only public player in the country, continues to be the dominant life insurer
even in the liberalized scenario of Indian life insurance industry and is moving fast on a
new growth trajectory surpassing its own past records. Entry of private and foreign
payers in the Indian life insurance industry, Life Insurance Corporation (LIC) of India,
needs to improve its performance in the area of grievances settlement a lot to face the
challenge.

VIII. CONCLUSION

In the early part of 2009, a Seminar on Consumer Protection and Education was conducted by
IRDA at Hyderabad wherein some path breaking decisions were announced. One such decision
was to introduce an integrated grievances software, which will allow IRDA to have access to
complaints across the industry and also enable them to monitor the disposal of grievances. IRDA
has undertaken new initiatives in regard to insurance awareness campaign, consumer education
etc. All insurers were advised to file with IRDA the grievance redressal policy adopted by them.
Redressal policy adopted by different companies was published by IRDA as a separate volume.
These initiatives are making steady progress and are expected to take shape within a reasonable
timeframe. Insurers are also advised to provide details of different grievance channels as well
details of the Insurance Ombudsman, wherever applicable, in the policy document itself. These
will be examined when products are filed with IRDA under the File and Use procedure. The
Authority is also in the process of implementing the Integrated Grievance Management System
(IGMS) through automation of the Grievance Cell for on-line registration of complaints. The
proposed automated system would also enable on-line verification of status and redressal.
Further, under the Corporate Governance guidelines, the Authority has also mandated that
insurers shall have in place the Policyholder Protection Committee.

The IRDA has recently established the Consumer Affairs Department to give a special focus to
and oversee the compliance by insurers of the IRDA Regulations for Protection of Policyholders’
Interests and also to empower consumers by educating them regarding details of the procedures
and mechanisms that are available for grievance redressal. Policyholders must be provided with
inexpensive and speedy mechanisms for complaints disposal and the IRDA (Protection of
Policyholders Interests) Regulations, 2002 require insurance companies to have in place,
effective and speedy grievance redress mechanisms. IRDA has also issued Guidelines for
Grievance Redressal, which will further strengthen the redressal systems insurers already have in
place.

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IX. SCOPE FOR FURTHER RESEARCH

The study can be further extended to investigate the performance in terms of consumer
protection and their welfare and comparison among all the life insurers. Such a study would
enhance the level of understanding for managers, academicians and researchers .This research
paper and its findings may be of considerable use to insurance institutions, policy makers and to
academic researchers in the area of consumer protection and their well-being.

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