Are Private sector insurance companies as safe as Public sector insurance companies?

This is a question that we as a broker receive from majority of our clients. Is private sector insurance company a safe bet?  In an insurance market that was monopolized by Public sector companies till the early 2000s, people still fear insuring their risks with a private sector insurance company. The question is whether this fear is worthwhile or not. Private Sector Insurance companies are as safe as public sector insurers because of the following reason:

1. All insurance companies functioning in India are controlled by Insurance Regulatory and Development Authority of India (IRDA) which is a controlling body of the insurers set up by a parliamentary act. All insurers be it private sector or public sector has to abide with the guidelines laid by IRDA. All insurance policies that are sold in the country have to be approved by IRDA before it can be launched for sale.
2. Every Insurance company doing business in India must maintain a minimum Solvency Margin. Solvency margin refers to the margin of assets over their liabilities(claims payable in the future). This must be maintained so that in case they go bankrupt the clients’ claims can be paid off. This Solvency Margin is kept as per the guidelines stated by IRDA.  The amount kept as Solvency Margin is in proportion to the business they accrue.  So the Solvency margin requirements are same for a private sector insurer and a public sector insurer.
3. The mode of settlement of disputes for the clients of private as well as public sector insurance companies is same.  Both can approach the Insurance Ombudsman who has the authority to settle disputes and the decision of the Ombudsman is binding on the Insurance company be it a private sector or a public sector company.
4. Every Insurance policy is a legal contract between the Insurer and the Client and is evidenced by the existence of a policy document. The insurers are bound by law to settle a claim if it is covered by the policy document. In areas where the policy document is vague about the coverage of a particular risk, the court will rule in favour of the client because the policy document was drafted by the Insurer. So whether it is a private insurer or a public sector insurer, the clients should study the policy wording carefully and choose the right product to cover their risk. No insurer can reject a claim if the risk is covered under the insurance contract.

Having said these things in favour of private sector insurers, clients can keep a few factors in mind while deciding which company to opt for.

1. Claim Settlement Ratio: This shows the number of claims settled by the insurer in respect to the number of claims received by them in a particular time frame. The closer the figure is to 1, better is the claim settlement ratio. Try to opt for insurers based on their Claim Settlement Ratio figures which are available online.
2. Profitability Factor: Like any other corporate, the wellness of an Insurer also is measured by their profitability. Higher levels of profit means the company can afford to take risks in future and better are the chances of having your claims settled.