The Indian government’s decision to reduce GST on insurance premiums to zero percent is a relief for millions, but it only scratches the surface of a deeper crisis in the insurance sector. According to the Council of Insurance Ombudsman’s 2023-24 annual report, the top three firms with the most complaints are Star Health, CARE Health Insurance, and Niva Bupa. Star Health leads with 13,308 complaints, with 10,196 related to claim rejections or slashes. CARE Health’s COO, Manish Dodega, defended his company’s position, stating that the number of complaints does not represent the true picture and that the industry has robust systems in place to address issues.
The scale of problems in the insurance sector is staggering, with 2,15,569 complaints filed on IRDAI’s platforms in FY 2023-24. Nearly 95% of health insurance complaints were about claim rejections, while 59% of life insurance complaints concerned misrepresentation or mis-selling. The financial impact on consumers is significant, with health insurance claim rejections rising to Rs 26,000 crore in FY24. Mis-selling is a major issue, with 26,107 life insurance complaints filed against unfair business practices, including mis-selling.
The root cause of mis-selling is the commission structure, which incentivizes selling expensive products over suitable coverage. Experts advocate for dramatic reforms, including overhauling the commission structure and banning upfront commissions in life insurance. The industry needs to focus on term insurance and fundamentally change its product mix. Regulatory transformation is also necessary, with experts criticizing IRDAI’s functioning and calling for a more market-consultative approach.
The cumulative effect of these problems has created a massive trust deficit, with 65% of policyholders not fully understanding their policies and 43% facing hurdles in health claim processing. This erosion of trust is pushing people away from insurance altogether. While the zero GST move addresses affordability concerns, it doesn’t tackle the fundamental issues of transparency, fair claim settlement, and honest selling practices. The industry needs comprehensive reforms, and until then, millions of Indians will continue to find themselves insured but unprotected.