Health insurance: Consumer grievance redressal mechanism needs to be beefed up | Photo Credit: sesame

A recent circular by the Insurance Regulatory and Development Authority of India (IRDAI) links Key Management Persons’ (KMPs) variable pay to customer-centric outcomes. This order is sound on intent, given the customer grievances in this sector; yet it is intrusive for an industry regulator to micro-manage the affairs of individual entities under its watch. It should seek better compliance on customer metrics instead. The metrics could include claims responsiveness, claims ratios, time taken to resolve grievances, among others.

There can be no denying the fact that the customer is often at the receiving end — particularly in the case of health insurance, the largest segment in the non-life category. A recent study by Observer Research Foundation cites incurred claim ratios (net claims paid out to net earned premiums) in health insurance, gleaned from IRDAI’s FY25 Annual Report. It says while an overall incurred claims ratio of 87 per cent in the health insurance industry looks good, it conceals wide variations — ranging from 100 per cent in the case of public sector insurers to 69 per cent for private standalone insurers, with other private insurers recording 88 per cent.

As for the managerial affairs of insurers, KMP salaries have so far been linked more to financial soundness. Now, insurers must prominently display public metrics on websites — including settlement timelines (15 to 60+ days), time to resolve grievances and claims paid ratios — while boards must weigh these outcomes when determining variable pay. The clause governing variable pay determination of KMPs in the Master Circular apparently applies only to private sector insurers; senior management in public insurance firms do not have a variable pay component. While the claims record of the PSUs looks good in customer terms, a circular that singles out only the private sector appears flawed. After all, over a third of the non-life segment is controlled by public sector insurers, while that figure is in excess of 55 per cent in life insurance. Indeed, decisions on salaries and variable pay metrics for senior management are best left to shareholders and company boards. The IRDAI should instead beef up its customer interface and focus on developing the industry, something that is in its very name. An insurer needs to be upfront in providing information on customer metrics as well as the terms and conditions of claims settlement — an area that remains opaque despite considerable criticism. But once a system for disclosures and grievance redressal is in place, the regulator should step back and allow market forces to play out. Inefficient insurers should ideally lose out to more trustworthy ones, provided the insured does not face barriers to exit.

In 2000, India’s insurance penetration, for both life and non-life combined, was about 2.32 per cent. By 2024, it had risen to just 3.7 per cent. The sector needs investment as well as growth across segments, albeit with accountability and transparency. The regulator should address this.

Published on June 4, 2026