Health Insurance Claims Surge Amid Rising Settlement Gap

The health insurance sector in India witnessed rise in claims in the financial year 2025. However, the amount settled by insurers did not keep pace with the increasing volume. This growing disparity points to rising healthcare costs and challenges in claim settlements. The Insurance Regulatory and Development Authority of India (Irdai) has raised concerns and is taking steps to ensure fair and transparent claim processes.

Rising Volume of Health Insurance Claims

In FY25, health insurance claims surged by 21.18 per cent compared to the previous year. Insurers settled 3.26 crore claims, up from 2.69 crore in FY24. The total amount paid towards these claims rose by 12.88 per cent to Rs 94,247 crore. This mismatch between claim volume and settlement amount reflects increased utilisation of health insurance and escalating medical expenses.

Premium Mobilisation and Incurred Claims Ratio

Health insurance premiums collected in FY25 reached Rs 1.18 lakh crore, up from Rs 1.08 lakh crore in FY24. The incurred claims ratio (ICR), which measures claims paid against premiums collected, varied across insurer types. Public sector insurers had the highest ICR at 103 per cent, indicating they paid more in claims than they collected in premiums. Private insurers had an ICR of 88.71 per cent, while standalone health insurers (SAHIs) showed a lower ICR of 64.71 per cent.

Impact of Medical Inflation and Premium Hikes

Medical inflation has exceeded 14 per cent annually, driven by advanced technology and rising labour costs. Lifestyle diseases such as diabetes and hypertension have increased claim frequency. This has led insurers to hike premiums sharply, especially for senior citizens. Some insurers increased premiums by up to 100 per cent, prompting Irdai to cap premium hikes for senior citizens at 10 per cent per year.

Challenges in Claim Settlement Processes

Despite regulatory efforts, claim settlement faces hurdles. Irdai mandated cashless claim settlements from August 2024 to simplify hospital bill payments. However, hospitals lack regulatory oversight, often increasing treatment costs. This has pressured insurers to reject or reduce claim amounts. In FY24, 66.16 per cent of claims were settled cashlessly, while 39 per cent were reimbursed. Third-party administrators handled 72 per cent of claims settlements.

Preventive Healthcare and Industry Response

To combat rising medical costs, 67 per cent of businesses now invest in preventive healthcare. This approach aims to reduce claim frequency and medical inflation. Insurers and regulators continue to focus on improving claim settlement transparency and efficiency to maintain public trust in the health insurance sector.

Questions for UPSC:

1. Discuss the impact of rising medical inflation on the health insurance sector in India. How can regulatory bodies balance consumer protection and insurer sustainability?
2. Critically examine the role of the Insurance Regulatory and Development Authority of India (Irdai) in ensuring fair health insurance claim settlements. What challenges does it face?
3. Explain the concept of incurred claims ratio (ICR) and its significance in assessing insurance company performance. With examples, discuss why public sector insurers might have higher ICR than private insurers.
4. With suitable examples, discuss the importance of preventive healthcare in managing medical inflation and its implications for health insurance policies in India.

Answer Hints:

1. Discuss the impact of rising medical inflation on the health insurance sector in India. How can regulatory bodies balance consumer protection and insurer sustainability?

1. Medical inflation in India exceeds 14% annually, driven by advanced technology and rising labor costs.
2. Rising medical costs lead to higher health insurance premiums, especially for senior citizens (up to 100% hikes reported).
3. Higher premiums reduce affordability and slow growth in health insurance coverage.
4. Insurers face increased claim amounts, pressuring profitability and sustainability.
5. Regulators like Irdai cap premium hikes (e.g., max 10% for senior citizens) to protect consumers.
6. Balancing requires promoting fair claim settlements, controlling medical costs, and ensuring insurer solvency.

2. Critically examine the role of the Insurance Regulatory and Development Authority of India (Irdai) in ensuring fair health insurance claim settlements. What challenges does it face?

1. Irdai mandates prompt, transparent, and fair claim settlement to build consumer trust.
2. It monitors claim settlement gaps and rising mismatch between claims filed and amounts settled.
3. Introduced mandatory cashless claim settlement from August 2024 to ease hospital bill payments.
4. Challenges include lack of regulatory control over hospitals, which can hike treatment costs arbitrarily.
5. Disputes and inefficiencies in claim processing lead to claim rejections or reduced payouts.
6. Balancing insurer viability with consumer protection amid rising medical inflation remains complex.

3. Explain the concept of incurred claims ratio (ICR) and its significance in assessing insurance company performance. With examples, discuss why public sector insurers might have higher ICR than private insurers.

1. ICR = (Claims Paid / Premiums Collected) × 100; indicates proportion of premium used to pay claims.
2. High ICR suggests more claims paid relative to premiums, reflecting claim settlement generosity or high claims.
3. Public sector insurers had ICR of 103% (FY24), indicating payouts exceeded premiums collected.
4. Private insurers’ ICR was 88.71%, showing relatively better control over claims and profitability.
5. Public insurers may have social obligations, less stringent underwriting, or older portfolios causing higher claims.
6. Standalone health insurers had low ICR (64.71%), possibly due to selective underwriting or lower claim payouts.

4. With suitable examples, discuss the importance of preventive healthcare in managing medical inflation and its implications for health insurance policies in India.

1. Preventive healthcare reduces incidence of lifestyle diseases (e.g., diabetes, hypertension) that drive claim frequency.
2. 67% of businesses invest in preventive care to curb rising medical costs and insurance claims.
3. Lower claim frequency helps insurers control premium hikes and maintain sustainability.
4. Insurance policies increasingly include wellness benefits, health check-ups, and incentives for healthy behavior.
5. Preventive care improves population health, reducing long-term medical inflation pressures.
6. Example – Corporate health programs leading to reduced hospitalization and claims, benefiting insurer and insured alike.