Broken health insurance shows regulatory health is weak

The design of India’s insurance system has normalised distrust, and the regulator has not fixed what is broken.

Every year, millions of Indians who turn to their health insurance in moments of crisis discover that the promise of protection is riddled with conditions, caveats, and technicalities. The industry’s standard defence is that customers themselves are to blame - they don’t declare past illnesses, they don’t read the fine print, they forget to renew on time, and so on.

To be fair to them, probably all these are valid too. But behind this narrative lies a deeper truth: the design of India’s insurance system has normalised distrust, and the regulator has not fixed what is broken.

Take the case of medical histories. Policyholders are told they should disclose every ailment, past or present, but the way premiums are structured makes full honesty feel like a penalty. When openness is punished with unaffordable pricing, concealment becomes inevitable. The problem is not dishonesty on the part of people, but a regulatory failure to design a framework where transparency is rewarded. It also needs more of insurance-literacy.

Or consider waiting periods and exclusions. Insurers insist that customers should have paid more attention, but the complexity of contracts ensures that most people cannot really understand what is covered until the claim is tested. If critical conditions are carved out for years, or if every insurer sets its own rules, the outcome is confusion by design. A regulator with a genuine consumer-first mission would insist on plain, uniform disclosures that empower rather than trap.

The fragility of renewals is another example. Miss a deadline by a few days, and years of accumulated protection can vanish, forcing a person to start again from zero. In an economy where autopayments are the norm for everything from utility bills to entertainment subscriptions, there is no reason why health coverage should be so brittle. The fact that it still is reflects an indifference to consumer security. Isn’t it a lesson to the insurance sector that Indian consumers are ready to auto-renew their Netflix subscription, but not for insurance policies?

Even when people try to be smart about costs by moving across providers, they find that portability is treated as a loophole rather than a legitimate choice. Instead of encouraging competition on service quality, the system makes customers pay with fresh exclusions or lost continuity benefits. A regulator that truly believed in markets would not allow consumer mobility to be punished.

Another unspoken tension in the claims process is the perception of entitlement. Many policyholders believe that if they have gone years without filing a claim, they are “owed” one when illness finally strikes. The industry is quick to remind them that each policy is an annual contract, reset every year, but the very fact that this misunderstanding is so widespread shows how poorly insurance has been explained. If customers think of it as a savings account rather than a risk pool, the blame lies with a system that has failed to build financial literacy into its products and communications.

Equally, the tendency of many Indians to purchase health cover only later in life has created its own distortions. When the bulk of new policyholders are older, premiums rise and risk pools skew against insurers. But here too, the answer is not to penalise latecomers; it is to design regulations that encourage early entry - through incentives, tax nudges, and simpler products that make sense to young families. Treating this as a moral failing of citizens ignores the reality that most people are locked out of affordable insurance until their vulnerabilities catch up with them.

Then there is the larger ecosystem. Hospitals often dictate treatment without standardised protocols, rampant corruption across the value chain, medical inflation continues to soar unchecked, and insurers complain of unsustainable payouts. Strikingly, the financial markets tell the story clearly: hospital chains enjoy soaring valuations, while listed insurers struggle to reassure shareholders. When one part of the ecosystem thrives only at the expense of the other, the outcome for patients will always be skewed.

The official hide-behind-speeches is to cite statistics of millions of claims “settled” each year. But a high volume of processed claims does not equal fairness. A system can be both busy and broken. What matters is not how many claims are handled, but how they are handled - whether people feel secure, informed, and respected in their moments of vulnerability. And if the regulator were ever required to publish the true comparison — the total value of claims submitted versus the amount actually reimbursed — the gap would expose just how hollow the rhetoric of “easy settlement” really is.

The larger lesson is that insurance in India is not simply a private contract between customer and company. It is a public trust. When regulators focus narrowly on industry stability while neglecting consumer confidence, the result is a market that looks functional on paper but feels hostile in practice.

Of course, insurers are entitled to have rules, limits, and conditions. No one expects a business to write blank cheques, and risk pools have to be managed with care. But the problem lies not in the existence of terms, but in how they are buried — deep inside policy documents running into dozens of pages, couched in technical language, and presented in ways that even the most diligent policyholder struggles to decode. In a moment of illness or emergency, no family has the luxury of cross-referencing clauses and annexures. The very structure of disclosure and consent, as it exists today, tilts against ordinary citizens who simply want to know what they are buying. What makes this worse is the regulator’s indifference.

Even the connected bureaucrats and influential often have to make calls to push through claims for family and friends. If that is the reality for the privileged, what chance does the average citizen have. Health insurance is meant to provide assurance in our most vulnerable moments. Today it does the opposite. Until the regulator recognises that its real mandate is not just industry stability but public trust, very Indians will remain insured on paper and under-protected in health.

The reluctance to overhaul the claims framework is also political expediency. Celebrating insurance penetration numbers is easier than confronting insurers and hospitals with tougher disclosure norms. But unless political will matches policy ambition, Indian health insurance will remain a system where disappointment is guaranteed. Until that shift happens, the insurance regulator will remain as weak as the claims process it oversees.