Health Insurance Claims Surge 21% in FY25, but Settlement Rates Fall Behind

India’s health insurance sector witnessed a sharp rise in claims during FY25, even as the insurance regulator, Insurance Regulatory and Development Authority of India (Irdai), raised concerns about the widening gap between the number of claims filed and the amounts actually settled. According to Irdai data, health insurance claims increased by 21.18% in FY25. However, the total amount settled by insurers grew by only 12.88%, indicating a growing mismatch that points toward rising healthcare costs, greater utilisation of health policies, and possible inefficiencies or disputes in the claim settlement process.

In FY25, general and standalone health insurers settled 3.26 crore claims, paying out ₹94,247 crore towards these claims. This marks an increase from FY24, when insurers settled 2.69 crore claims, paying ₹83,493 crore. Among insurers, standalone health insurance companies (SAHI) continued to record the lowest incurred claims ratio (ICR), reflecting more efficient claim management compared to public and private sector general insurers.

The health insurance premium collected by the industry also rose during FY25. According to the General Insurance Council, insurers mobilised ₹1.18 lakh crore as health insurance premium, up from ₹1.08 lakh crore the previous year. Despite this increase, Irdai has highlighted concerns over how claim values do not fully reflect the rising number of claims being filed.

Irdai Chairman Ajay Seth recently addressed this issue on Bima Lok Pal Day, emphasising the gap between the number of claims and the amount settled. He highlighted that although insurers are settling a large volume of claims, the settlement amounts—especially full settlements—remain lower than expected. Seth stressed the need for insurers to ensure clear, prompt, fair, and transparent claim settlement, stating that any deviation from these principles undermines trust in the insurance industry.

ICR, which indicates the proportion of premiums paid out as claims, further reflects the pressures on insurers. Public sector insurers recorded a very high ICR of 103%, meaning they paid more in claims than they collected in premiums. Private sector insurers recorded an ICR of 88.71%, while SAHIs maintained a significantly lower 64.71%, according to the Irdai Annual Report for FY24. This demonstrates that SAHIs remain more financially stable and efficient compared to public sector insurers, which are absorbing higher financial strain.

One of the major reasons behind the slow growth in health insurance penetration is the steep rise in premiums. Premium rates have surged due to medical inflation, rising treatment costs, and increased claim frequency. Earlier in the year, Irdai instructed insurers not to hike premiums for senior citizens by more than 10% annually, following instances where insurers had increased premiums by 50–60%, with some even doubling them.

Industry data shows that average healthcare service costs have risen by over 14%, driven by advancements in medical technology and higher labour expenses. The increasing prevalence of lifestyle-related illnesses such as diabetes, hypertension, and heart disease has also contributed to the rising claim burden on insurers.

To cope with rising medical costs, businesses are adopting preventive strategies. According to Howden India, 67% of companies are now investing in preventive healthcare initiatives to curb long-term medical expenses and reduce the incidence of high-value insurance claims.