India’s rapidly expanding health insurance ecosystem is losing an estimated Rs 8,000 to Rs 10,000 crore every year to fraud, waste and abuse (FWA), a scale of leakage that risks eroding insurer profitability, pushing up premiums and undermining public trust, according to a new report jointly released by Boston Consulting Group (BCG) and Medi Assist at the Raksha Summit 2025.
Titled 'Rebuilding Trust: Combating Fraud, Waste and Abuse in India’s Health Insurance Ecosystem', the report warns that FWA has shifted from being an occasional concern to a systemic challenge that threatens the long-term sustainability of the sector.
The study situates this crisis against the backdrop of a fast-growing insurance market.
Health insurance gross written premium has reached Rs 1.27 lakh crore in 2025 and is projected to nearly double to Rs 2.6-3 lakh crore by 2030, growing at an annual rate of 16-18 percent. At the same time, healthcare inflation has averaged 12-14 percent annually over the past five years, far outpacing general inflation, although multiple industry practitioners told Moneycontrol that the actual inflation could perhaps be a lot more -- possibly at around 17-18 percent.
This has translated into a 40 percent rise in average claim size to around Rs 32,000 in FY24, increasing financial pressure on insurers and heightening vulnerability to fraudulent practices .
According to the report, FWA manifests through deliberate fraud such as fake hospital admissions and fabricated claims, waste stemming from operational inefficiencies, and abuse involving billing practices that violate clinical or ethical standards.
Unbundling of procedures, where hospitals split a single treatment into multiple billable components, emerged as the most prevalent and high-risk category, followed by tariff deviation and excess billing, according to the report. These practices inflate healthcare costs and create a vicious cycle of higher premiums, reduced insurance penetration and increased out-of-pocket spending by households.
The financial consequences are severe.
The report estimates that every 100-basis point reduction in FWA could improve the sector’s return on equity by 70-80 basis points, while a 50 percent reduction could lift profitability by nearly 35 percent.
Conversely, persistent leakage continues to thin insurer margins, many of which remain in single digits, despite enabling policies such as 100 percent foreign direct investment in the sector.
As fraudulent claims rise, insurers tighten scrutiny, subjecting even genuine claimants to delays and repeated checks.
India continues to operate largely under a public-plus-out-of-pocket model, with households still bearing 39 percent of healthcare expenditure, compared with insurance contributing just 13 percent, though this share is slowly rising.
According to insurance officials Moneycontrol spoke to, the root causes of FWA likely lies in fragmented data systems, manual and reactive audits, misaligned incentives between payers and providers, and limited standardisation of protocols.
Hospitals and insurers often operate on inconsistent billing formats and varying treatment standards, creating loopholes that allow malpractice to flourish, they said.
The report also notes that fraud risk is not uniform, with infectious disease claims displaying significantly higher vulnerability due to vague symptoms and test-heavy billing, while surgical procedures show comparatively lower risk owing to stricter documentation requirements.
To counter this, the report proposes a national roadmap centred on technology, legal reform and coordinated stakeholder action.
It calls for the widespread deployment of AI and generative AI to detect anomalies in real time, integration of health data through platforms such as ABDM and NHCX, and the creation of unified, interoperable claims infrastructure.
These tools, when combined with predictive analytics and automated checks embedded into hospital systems, could shift India from reactive investigation to proactive prevention.
Industry practitioners said, a significant regulatory development reinforcing this push is the Insurance Fraud Monitoring Framework Guidelines 2025 issued by IRDAI.
These mandate insurers to establish Fraud Monitoring Committees and independent monitoring units, standardise fraud classification, and participate in shared intelligence repositories, signalling a zero-tolerance approach to FWA.
They added, however, technology alone may not be enough.
"Codifying FWA as a defined and prosecutable offence is much needed, introducing penalties and criminal provisions for deliberate fraud while also building behavioural and trust-based incentives for compliance."
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