Insurance reforms: Why claims matter more than distribution costs

Summary

As Irdai weighs changes to insurance distribution, rising health claims disputes and gaps in grievance redressal underscore the need for stronger insurer accountability, fairer claims settlement and better policyholder protection.

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