IRDAI Chairman Ajay Seth says insurers must focus on actual claim payouts rather than just settlement ratios. Proposed reforms could bring fairer premiums, stricter sales practices and greater transparency for policyholders.
Highlights
- IRDAI plans major insurance reforms to improve claim settlements and protect policyholders.
- The regulator will monitor actual claim payouts, not just claim settlement ratios.
- Customers could receive a full premium refund if insurance mis-selling is established.
- Proposed rules aim to reduce high upfront commissions, currently reaching 40–50% in some cases.
Health Insurance Reforms: IRDAI Plans Stricter Rules to Protect Policyholders
India’s insurance regulator is preparing major reforms aimed at protecting customers from mis-selling, high premiums and unfair claim practices. The Insurance Regulatory and Development Authority of India (IRDAI) wants insurance companies to focus on the actual amount paid to policyholders rather than simply highlighting high claim settlement ratios.
In an interview with The Hindu BusinessLine, IRDAI Chairman Ajay Seth said the proposed reforms would improve transparency, reduce distribution costs and ensure better value for insurance customers.
The regulator is also considering changes to insurance commissions and stricter accountability for insurers and distributors.
Actual Claim Payouts More Important Than Settlement Ratios
Health insurance customers often check an insurer’s claim settlement ratio before buying a policy. However, IRDAI believes this figure alone does not provide a complete picture.
An insurer may settle a large number of claims while paying less than the total amount claimed by customers.
Seth said the regulator is actively monitoring how much money insurers actually pay.
Under existing safeguards, insurers cannot reject claims without approval from their Claims Review Committee, which must provide reasons linked to specific policy terms.
IRDAI is also working with healthcare providers to standardise claim processes and reduce disputes.
Full Premium Refund Proposed for Insurance Mis-Selling
One of the biggest proposed changes concerns insurance policies sold through misleading information or unsuitable recommendations.
Currently, some insurance distributors receive first-year commissions as high as 40–50%, creating incentives to prioritise sales over customer needs.
IRDAI wants to reduce upfront commissions and link more payments to how long customers continue their policies.
Under the proposed framework, if mis-selling is established, the customer would receive a full premium refund. The distributor’s commission would be recovered, and both the insurer and distribution entity could be held responsible.
The regulator also wants to prevent customers from being forced to purchase insurance alongside loans.
Will Health Insurance Premiums Become Cheaper?
IRDAI believes reducing unnecessary distribution and operating expenses could help make insurance more affordable.
According to Seth, expenses at private life insurance companies have increased from approximately 16% in FY21 to around 22%. For private general insurers, expenses have risen from about 25% in FY19 to 32%.
The regulator expects better cost management to support lower premiums or moderate future premium increases.
However, the proposed reforms do not guarantee an immediate reduction in insurance premiums.
IRDAI Examines Rising Medical Inflation
Health insurance companies frequently cite medical inflation of around 14–15% while increasing premiums.
Seth acknowledged that healthcare costs are rising but said medical inflation cannot explain every premium increase.
Insurance premiums are also influenced by operating expenses, distribution costs and previous claims.
IRDAI and the Confederation of Indian Industry (CII) have established working groups involving hospitals and insurers to examine medical inflation and improve claims management.
A proposed Public Insurance Registry could eventually allow customers to compare insurers based on premium revisions, claims records and other important information.
When Will the New Insurance Rules Come Into Effect?
IRDAI has invited public comments on its consultation paper, Recalibrating Economics of Insurance Distribution, until October 25, 2026.
After reviewing the feedback, the regulator plans to release draft regulations for another round of consultation.
Two possible implementation dates are being considered:
- January 1, 2027
- April 1, 2027
The regulator also plans comprehensive claims management reforms during FY2027-28.
What This Means for Policyholders
The proposed reforms could make insurance purchases more transparent, discourage misleading sales practices and improve claim outcomes. Customers may also gain better information about insurers before choosing policies.
However, these changes are still proposals, and the final rules will depend on further consultations and regulatory approval.
