IRDAI flags discrepancy in high claims but low payouts in Health Insurance

IRDAI (The Insurance Regulatory and Development Authority of India) has expressed concern regarding the low percentage of claims settled by the Insurance companies compared to the total claims received - also known as Claim Settlement Ratio (CSR).

At Bima Lokpal Day event, the Chairman, Mr Ajay Seth emphasized the need for prompt, fair, and transparent claim settlements from insurers to restore policyholder trust. The main emphasis of IRDAI was on the gap between the number of claims settled (which is high) and the amount settled, which is lower than expected. 

Even as 3.3 crore health insurance claims were settled in FY25, amounting to ₹94,247 crore, there was a growing dissatisfaction among policy holders. Health insurance is a leading source of policyholder dissatisfaction, accounting for 54% of the 53,230 complaints filed with the Insurance Ombudsman in FY24.

The shortfall is partially attributed to ongoing disputes between insurers and hospitals regarding package rates and the questioning of medical procedures post-treatment.

Insurers were called upon to strengthen their internal grievance redressal systems, making them "robust, responsive, and reassuring," with the goal of preventing complaints rather than just resolving them. There was a need to focus on strong grievance system. 

IRDAI is also pushing insurers to appoint internal ombudsmen to increase accountability and speed up complaint resolution.

Our view: 

Low CSR has always been a point of discontentment for the insured. Even as Insurance companies claim high percentage of claims being settled, the discontentment amongst policy holders stems from the fact that many of these claims are settled for far less amounts than the initial claim amounts. The percentage settlement does not matter to policy holders - the amount matters more. In a way, CSR focusses only on the quantity of the settlements – not the quality.

Additionally, the discontentment is also due to factors like delay in claim processing and number of documents demanded. Many cases keep pending due to lack of documents provided, pre-existing conditions and policy exclusions during claims.

This has resulted in low Insurance penetration in the Indian markets. As per annual report of IRDAI, the life insurance penetration has shown a dip to 3.7% in 2023-24 vs 4% in 2022-23, even as premium collected rose 6%. Lack of Unified Health Regulator creates problems for consumers, as no proper redressal system is there. There is a need for a health regulator that covers hospitals, TPAs, and insurers under one umbrella. IRDAI currently does not regulate hospitals. This promotes nexus between hospitals and TPAs (Third Party Administrators). 

Finally, it is felt that faster technological upgradations too are needed for the IRDAI. A year ago, IRDAI mandated the three-hour settlement of cashless health claims.  The rule, however, exists largely on paper due to a lack of real-time monitoring and penalties, resulting in long waits for patients.

A falling percentage does not augur well for India, where we have a vision of ‘Insurance for All’ by 2047.
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Link:
https://economictimes.indiatimes.com/industry/banking/finance/insure/high-claim-ratio-but-lower-payouts-irdai-raises-concern-over-incomplete-health-claim-settlements-says-it-is-watching-closely/articleshow/125271761.cms?from=mdr