Insurance claim rejections surge; ₹26,000 crore health claims denied in FY24

General insurance serves as a financial safety net during emergencies, protecting individuals from hefty out-of-pocket expenses. However, not all claims get approved. In 2022-23, the claim-to-settlement ratio—a measure of claims honored by insurers—dipped to 86%, down from 87% in the previous fiscal year, according to the Insurance Regulatory and Development Authority of India (IRDAI).

The health insurance segment saw a steep rise in rejected claims. Insurers disallowed or repudiated health policy claims worth ₹26,000 crore during FY24, a 19.1% increase from ₹21,861 crore in FY23. Disallowed claims, those denied due to policy terms, rose to ₹15,100 crore in FY24 from ₹12,754 crore in FY23. Similarly, repudiated claims, outright rejected by insurers, increased to ₹10,937 crore from ₹9,107 crore in the same period.

The Insurance Brokers Association of India (IBAI) reported that the claims repudiation ratio for general insurance rose to 6% in FY24. This includes segments like motor, health, fire, and marine cargo.

Top Performers and Trends in Settlement Ratios

Public sector insurer New India Assurance emerged as the best performer, with a claims repudiation ratio of just 0.2%. It also topped the health insurance category among public insurers with a claim-settlement ratio of 95%. In the standalone health insurance category, Aditya Birla Health recorded a similar 95% settlement ratio.

Among large private sector insurers, Iffco Tokio and Bajaj Allianz stood out with claim-settlement ratios exceeding 90%. For motor vehicle own-damage claims, New India Assurance led public insurers with a 92% settlement ratio. Private players like Royal Sundaram, Go Digit, and SBI General excelled in the same category, while Future Generali performed best among small insurers.

Challenges in the Health Insurance Sector

The IBAI noted that health insurance data combines group (corporate) and individual policies, historically showing lower rejection rates for corporate claims. This lack of segregation has drawn criticism from experts, including author-influencer Monika Halan, who questioned why IRDAI does not provide separate data for individual and group claims.

Experts also identified incomplete or false disclosures during policy purchase as a key reason for claim rejections. Segregated claim-settlement data for individual policies could provide a clearer picture and help consumers make better-informed choices.

Barriers to Insurance Growth in India

India's insurance penetration remains low, with only 30% of the population covered, compared to over 90% in developed nations like the U.S. This is despite the absence of a robust social security net and the inadequacy of government healthcare infrastructure.

A major deterrent is the high cost of insurance, exacerbated by an 18% Goods and Services Tax (GST) on premiums. This high tax burden forces many individuals to opt for smaller coverage.

Reforms and Future Outlook

Industry experts stress the need for significant reforms to expand insurance coverage and improve claim-settlement transparency. These include:

• Tax Relief: Reducing the 18% GST on insurance premiums to make policies more affordable.

• Data Segregation: Publishing separate claim-settlement ratios for individual and group health policies to enhance consumer awareness.

• Policyholder Education: Raising awareness about accurate disclosures during policy purchases to reduce claim rejections.

While public and private insurers like New India Assurance, Aditya Birla Health, and Bajaj Allianz continue to set benchmarks, systemic changes are crucial to boosting trust and penetration in India’s underinsured market.