Health Insurance Claims Outpace Settlements in FY25
The Indian insurance sector witnessed a significant surge in health insurance claims during the fiscal year 2025, with claims jumping by 21.18 percent compared to the previous year. However, the total amount settled by insurers increased by only 12.88 percent, creating a worrying gap that has caught the attention of insurance regulator Irdai.
According to the latest data from the Insurance Regulatory and Development Authority of India, general and health insurers settled 3.26 crore health insurance claims in FY25, paying out Rs 94,247 crore towards these settlements. This represents a substantial increase from FY24, when insurers settled 2.69 crore claims and paid Rs 83,493 crore.
Incurred Claims Ratio Reveals Sector Disparities
The incurred claims ratio (ICR), which measures the actual payout on claims compared to premiums collected, showed significant variation across different types of insurers. Public sector companies recorded the highest ICR at 103 percent, meaning they paid out more in claims than they collected in premiums.
Private sector insurers maintained an ICR of 88.71 percent, while standalone health insurance companies (SAHIs) showed the lowest ratio at 64.71 percent, according to Irdai's Annual Report for FY24. SAHIs collected Rs 37,528 crore as health insurance premium in FY25.
The total health insurance premium mobilized across the industry reached Rs 1.18 lakh crore in FY25, compared to Rs 1.08 lakh crore in the previous year, as reported by the General Insurance Council.
Regulatory Concerns and Industry Challenges
Irdai Chairman Ajay Seth recently expressed concerns about the settlement gap during his comments on Bima Lok Pal Day. "In health insurance, we continue to see the gaps. While the number of claims settled is high, the amount settled, especially in full, is sometimes lower than expected. This is an area we are monitoring closely," Seth stated.
The regulator emphasized the importance of fair claim settlements, with Seth adding, "Our expectation from the insurers is clear, prompt, fair and transparent claim settlement, anything less weakens the trust on which our industry is built."
The growing mismatch between claims and settlements highlights several challenges facing the health insurance sector:
- Rising healthcare costs driven by medical inflation
- Higher utilization of health policies
- Possible inefficiencies in claim settlement processes
- Increasing disputes between insurers and policyholders
Premium Hikes and Medical Inflation Impact
Health insurance growth has slowed due to sharp premium increases, triggered by medical inflation and high claim volumes. Industry data indicates that the average cost of healthcare services has increased by over 14 percent in the past year, driven by advancements in medical technology and rising labor costs.
Earlier this year, Irdai had to intervene by directing insurers against revising health cover premiums for senior citizens by more than 10 percent annually. This action followed premium hikes of 50-60 percent by some insurers for senior citizens, with some companies even implementing 100 percent increases.
The growing prevalence of lifestyle diseases such as diabetes and hypertension has contributed to higher claim numbers, according to insurance industry executives.
Cashless Settlement Challenges
Irdai's mandate for cashless settlement of health insurance claims, effective from August 1, 2024, aimed to make hospital bill settlements smoother and faster for policyholders. However, implementation challenges persist.
While insurers operate under strict Irdai regulation, hospitals function without similar oversight, limiting the regulator's ability to control hospital charges. Medical inflation has remained above 14 percent over the past three years, with hospitals consistently increasing treatment charges across various procedures.
In response to rising medical costs, some insurers have reduced claim demands or rejected claims altogether. The average amount paid per claim stood at Rs 31,086 in FY24, according to Irdai data.
Regarding settlement methods, 72 percent of claims were processed through third-party administrators (TPAs), while the remaining 28 percent were handled through in-house mechanisms. In terms of settlement mode, 66.16 percent of total claims were settled through cashless methods, with another 39 percent processed through reimbursement in FY24.
The insurance industry faces the dual challenge of maintaining affordability for consumers while ensuring sustainable business models amid rapidly escalating healthcare costs.
