Insurance reforms: Why claims matter more than distribution costs
The debate over the Insurance Regulatory and Development Authority of India’s (Irdai) proposed distribution reforms has centred on whether the changes could push agents and point-of-sales persons (POSPs) out of the business, hurting insurance penetration and post-sales services. But for policyholders, a more immediate question is whether their insurer will pay a valid claim, and whether they can get a fair hearing when it does.
The numbers suggest there is considerable room for improvement. Health insurance complaints to the Insurance Ombudsman rose 263% over five years, from fiscal year 2021 (FY21) to FY25. Life insurance complaints declined 5% over the same period, though they rose 15% between FY24 and FY25. The nature of the grievances is equally telling: partial or total claim repudiation accounted for 96% of health insurance complaints, while misrepresentation of policy terms accounted for 59% of life insurance complaints.
“Life insurance complaints may have declined partly because mis-selling, such as traditional policies being sold as fixed deposits, often comes to light only after two or three years," said Shilpa Arora, co-founder and chief operating officer, Insurance Samadhan. "While complaints can be filed with the Insurance Ombudsman within a year of the insurer rejecting them, such cases are increasingly being rejected because the policy was bought much earlier. Policyholders often discover mis-selling only when the second or third premium falls due. They have nowhere to go.”
The numbers suggest there is considerable room for improvement. Health insurance complaints to the Insurance Ombudsman rose 263% over five years, from fiscal year 2021 (FY21) to FY25. Life insurance complaints declined 5% over the same period, though they rose 15% between FY24 and FY25. The nature of the grievances is equally telling: partial or total claim repudiation accounted for 96% of health insurance complaints, while misrepresentation of policy terms accounted for 59% of life insurance complaints.
“Life insurance complaints may have declined partly because mis-selling, such as traditional policies being sold as fixed deposits, often comes to light only after two or three years," said Shilpa Arora, co-founder and chief operating officer, Insurance Samadhan. "While complaints can be filed with the Insurance Ombudsman within a year of the insurer rejecting them, such cases are increasingly being rejected because the policy was bought much earlier. Policyholders often discover mis-selling only when the second or third premium falls due. They have nowhere to go.”
The outcomes of disputes raise further questions. Irdai’s distribution reform consultation paper said that in FY26, 63% of complaints disposed of through Bima Bharosa were settled in policyholders’ favour. At the Insurance Ombudsman level, the share was 75%, while 54% of cases decided by consumer forums and courts went in favour of customers.
“These figures suggest some claims may have been unjustifiably rejected. Many policyholders may accept rejections without contesting them, and some may even lose faith in insurance altogether. Wrongful rejections fuel mistrust, and addressing them should take priority over distributor commissions,” said Kshitij Jain, co-founder, Nyvo Insurance Services.
The focus, experts say, must extend beyond distribution to how claims are assessed, disputes resolved and insurers held accountable.
One complaint, one system
A policyholder challenging a claim must navigate multiple layers of grievance redressal. The process begins with the insurer, moves to its grievance redressal officer (GRO), then to the Bima Bharosa portal and the Insurance Ombudsman, and may eventually reach consumer courts. At each stage, customers may have to resubmit documents and explain the dispute from scratch.
“Why can't one complaint ID follow the case across all levels? Digital platforms such as Bima Sugam and Public Insurance Registry could help centralise grievance redressal. This should be a priority,” said Arora.
Winning a dispute does not always mean a policyholder's troubles are over. Insurers must comply with an Insurance Ombudsman award within 30 days of receiving it, failing which a penalty of ₹5,000 per day is payable to the complainant. Yet, experts say, enforcement can be difficult, and some insurers may comply with only part of a decision.
Arora cited cases in which insurers paid claims after the Ombudsman ruled in policyholders’ favour but subsequently cancelled their policies, preventing renewal.
“If the Ombudsman rules that non-disclosure of a pre-existing disease (PED) was not a valid reason to reject a claim in a particular case, the insurer may still cancel the policy on the same grounds after paying the claim. We have seen multiple such cases, but policyholders cannot approach the Ombudsman again as there is no review mechanism and a fresh complaint cannot be filed under the same policy code,” she said.
The gap extends to cases resolved through recommendations or mediation that insurers fail to honour. Customers may then have to approach consumer courts, where the time and expense involved can outweigh the amount in dispute. "Such cases fall through the system," she said.
A mechanism to review incomplete compliance and subsequent actions linked to the same dispute could help prevent such cases from falling through the cracks.
Make insurers pay for failures
When a rejected claim reaches the Ombudsman, the dispute raises questions not only about the original decision but also about the insurer’s internal grievance process. The GRO is expected to review complaints impartially, yet some disputes still escalate to external forums.
Consumer policy expert and former member of the insurance ombudsman advisory committee Bejon Misra argued that insurers should face greater financial consequences when their decisions lead to avoidable disputes. Currently, insurers contribute towards Ombudsman-related costs based on their turnover.
He suggested linking contributions to the number of complaints received, so insurers against which more complaints are filed bear a greater financial burden. The aim would be to encourage them to resolve genuine grievances internally rather than let them escalate.
Accountability must also extend to mis-selling in life insurance. Avdesh Mishra, managing director and chief execuitve of Avdesh Mishra Capitals, an investment advisory firm registered with the Securities and Exchange Board of India, said insurers cannot absolve themselves of responsibility by blaming individual distributors when their own systems process unsuitable policies.
"If the product being sold to an elderly has a maturity period of 20-30 years, it is clearly mis-selling. Why do they process such policies in the first place? With distribution reforms, the person who sold the policy will be traced, but it is not a matter of one person. It involves insurer officials as well. Why are we throwing only distributors under the bus? It is a systemic issue. We need a mechanism where top management is held responsible in such cases," Mishra said.
He also cited instances in which insurer employees allegedly advised health insurance agents and customers to conceal PEDs or understate their weight to get policies issued.
The point is that tracing the seller alone may not address the problem if the insurer's own processes allow unsuitable policies to be issued.
Tackle hospital costs
The debate over claims also extends to hospital billing. Earlier this month, the General Insurance Council (GIC) proposed a mandatory 10% co-payment on all retail health insurance policies. Experts argue that if excessive hospital charges are driving up claims costs, the response should target billing practices and pricing rather than shift more of the burden to policyholders.
"Instead of penalizing customers with 10% co-pay, GIC should think around controlling hospital costs much more. Instead of each insurance company negotiating separately with hospitals, GIC should be the one negotiating and fixing the rate list to control cost. Insurance companies should realize that hospitals can't survive without them. Strong action against hospitals in case of overcharging or fraud will solve this and no 'innovative' solutions like 10% co-pay will be required," Jain said.
Raise the bar for sellers
The quality of advice at the point of sale is another concern. Insurance agents can currently enter the industry after Class 10, with 75 hours of training and a one-hour examination requiring a passing score of 36%. Irdai’s consultation paper proposes raising the minimum educational qualification to Class 12 and increasing training to 100 hours.
Mishra believes these changes may not go far enough given the complexity of insurance contracts. He called for a tougher examination and continuous development programmes to ensure agents understand policy terms and keep pace with industry changes.
Jain suggested that every agent should be monitored on the basis of claims denied because of customer non-disclosure, with commissions clawed back or agents banned across all insurance products. “This has been touched in the consultation paper but alignment of incentives is more important than cap.”
The proposed distribution reforms may change how insurance intermediaries are paid and how they operate. But restoring policyholders’ trust will depend on whether valid claims are paid, disputes are resolved fairly and insurers are held accountable for failures in their own systems.