Health insurance in India—a safety net meant to protect against unforeseen medical expenses—is facing a significant drop in subscriber confidence. Many policyholders are reevaluating their choices as they witness a rise in claim rejections, soaring premiums compounded by GST, and a maze-like claim process.
Inadequate policy benefits, such as limited critical illness coverage and restrictions on outpatient (OPD), inpatient (IPD), and post-hospitalisation expenses, further aggravate the situation. This blog delves into the underlying reasons behind this troubling trend and presents potential solutions to help rejuvenate the sector.
Reasons for Losing Policyholders’ Interest in Insurance Products
Rising Premiums and Financial Uncertainty
One major factor causing people to opt out of their health insurance plans is the ballooning premium cost. Consider the case of Arnab Moitra, a 37-year-old IT professional from Gurugram. In 2015, he purchased a family floater plan with a coverage of Rs. 5 lakh at an annual premium of Rs. 27,000. Over the next decade, the cost of the same plan surged to Rs. 80,000 by 2025, making it increasingly difficult for middle-class families to maintain coverage.
Even with a modest 10% claim rebate, the doubling of premiums post-pandemic has pushed many to question the overall value of these policies. With such rapid increases, households are compelled to reconsider their budget allocations, prompting a deep skepticism about whether health insurance remains an affordable option.
The Impact of Rejected Claims on Trust
The frustration over rejected claims has also played a crucial role in the waning interest. Take the example of Jitesh, who was paying Rs. 2 lakh annually for a coverage of Rs. 40 lakh. After a claim was denied, he completely withdrew from his policy. Similarly, Biswajit Singh, a 42-year-old professional from Patna, experienced significant financial distress when his claim for gallstone treatment was partially approved—only Rs. 1.6 lakh of a Rs. 2.25 lakh bill was sanctioned.
Denied reimbursement for preoperative tests and consultations due to obscure fine-print clauses, Sharma’s ordeal, which lasted over two months, epitomizes the typical frustrations encountered by many policyholders. Such experiences have fostered a growing distrust, pushing many towards alternative financial strategies that seem to offer more transparency and reliability.
The Double-Edged Sword of GST on Insurance Premiums
Adding to the burden is the 18% GST imposed on health insurance premiums. Bhumi Shah’s experience highlights this issue vividly: her family floater plan, which once cost Rs. 12,000 in 2010 for a Rs. 5,00,000 coverage, now demands Rs. 48,000 by 2024. The additional tax component has not only inflated the overall cost but has also undermined the perceived value of the policy, making it harder for consumers to justify ongoing investments in what they see as an increasingly unaffordable financial product.
Seeking Alternatives in an Uncertain Market
Faced with escalating costs, rejected claims, and complex policy terms, many Indians are now exploring other financial avenues. A growing number have started channeling their investments into systematic investment plans (SIP), public provident funds (PPFs), or other conservative saving schemes. While some are restructuring their existing policies or switching to new ones, the hurdles of waiting periods and policy restrictions continue to pose significant challenges. This migration away from traditional health insurance is not only a sign of frustration but also a call for a necessary industry overhaul.
Solutions and Initiatives for Regaining Consumers’ Trust
Digital Transparency
Insurers must actively innovate their digital strategies to rebuild trust. They should use technology to enhance transparency and improve the consumer experience. This involves making policy documents, underwriting criteria, and disclosures easily accessible and understandable online. By enabling a seamless self-service user experience and offering flexible product customization, insurers can clarify the insurance process and empower consumers to make informed decisions.
Government and IRDAI Reforms
The Insurance Regulatory and Development Authority of India (IRDAI) has introduced sweeping reforms on 26th March 2025 to streamline health insurance processes and improve policyholder experience. Key highlights include:
Faster Claims Settlement
- Insurers must respond to cashless authorisation requests within 1 hour.
- Discharge authorisations must be finalized within 3 hours after hospital request.
- Aimed at avoiding delays during medical emergencies.
Push for 100% Cashless Claims
- Insurers are encouraged to move toward 100% cashless settlements, limiting reimbursements to rare cases.
- Digital pre-authorisation and hospital help desks mandated to assist policyholders.
Claims Review and Rejection Transparency
- No claim can be rejected without review by the Policyholders’ Management Committee (PMC) or a Claims Review Committee (CRC).
- Rejections must include written justification with reference to policy terms.
- TPAs and insurers must collect documents from hospitals, not the policyholder.
Multiple Policy Coordination
- Policyholders with multiple health policies can choose the insurer under which to claim.
- The primary insurer must coordinate with other insurers to settle balances.
Policy Cancellation and Refunds
- On mid-term cancellation, policyholders may receive a refund of the premium or pro-rata premium for the remaining term.
Conclusion
The decline in trust towards health insurance in India can be primarily attributed to soaring premium costs—exacerbated by additional taxes—the frequent rejection of claims, and an overall lack of comprehensive coverage. These issues have forced many policyholders to reconsider their options, seeking alternative investment vehicles that promise greater transparency and reliability.
For the health insurance industry to regain public confidence, significant reforms are needed. Insurers must simplify their claim processes, revise premium structures to reflect affordability without compromising on benefits, and ensure that policies truly offer the security they promise. Only through such measures can the industry hope to restore trust and provide genuine financial protection for its customers.
