The Shifting Sands of Insurance in India
Health and life insurance are foundational to sound financial planning. Without adequate coverage, unexpected medical expenses or the loss of a breadwinner can devastate a family’s financial well-being. Life insurance is especially important for those with dependents, as it provides a crucial safety net.
However, despite the clear need, a significant portion of the Indian population remains uninsured, facing barriers like high premiums, complex policy structures, and constant changes by insurers.
Tougher Underwriting and Increased Rejections
Recent trends reveal a significant tightening of underwriting rules in India, leading to a concerning rise in policy rejections. Insurers have intensified their risk assessment processes, making it more challenging for applicants to secure coverage.
Nithin Kamath, Founder & CEO at Zerodha & Rainmatter, highlighted this issue in a social media post:
“The first thing you should do when you are starting your personal finance journey is to ensure you have sufficient life and health insurance. If you have dependents, not having life insurance is a bad idea. (However) based on my interactions with folks, perhaps the biggest reason why they don’t have life insurance is because the policies are a nightmare to understand with all sorts of jargon and hidden clauses. Then there’s the fact that insurers keep changing things. For example, I didn’t know underwriting rules had become much tougher and rejections had gone up.”
Decoding the Underwriting Process
In India, insurance underwriting involves a detailed evaluation of an applicant’s health, lifestyle, occupation, and financial background. This process is used to assess risk before issuing a policy. Key factors considered include age, medical history, smoking habits, family medical history, and income, all of which impact the premiums and coverage levels.
Insurers must also adhere to guidelines set by the Insurance Regulatory and Development Authority of India (IRDAI).
The Impact of the Pandemic and Evolving Rules
Industry experts attribute the shift in underwriting practices to the COVID-19 pandemic. The pandemic led to higher claims, compelling insurers to reassess their strategies. This has resulted in more detailed medical tests, and even minor pre-existing health conditions can now lead to higher premiums or outright rejection.
Jargon and Hidden Clauses: A Barrier to Entry
Another significant deterrent is the complexity of insurance policies. The industry’s use of financial jargon and inclusion of hidden clauses confuse prospective customers. Terms like riders, exclusions, and waiting periods further complicate the understanding of what’s covered and what’s not, discouraging many from applying.
Frequent changes in rules also add to the confusion as insurers adjust terms and conditions, often increasing waiting periods for claims or reducing payout ratios for specific types of death, such as those related to lifestyle diseases.
Staying Informed: Key to Securing Protection
Financial advisors strongly recommend those seeking insurance to conduct thorough research. Comparing different policies and carefully scrutinizing the fine print is crucial. Applicants should look beyond just the premium amount and should carefully assess factors such as claim settlement ratios, exclusions, and medical test requirements.
The IRDAI has been monitoring these changes and issuing guidelines to improve policy transparency. However, insurers retain flexibility in adjusting underwriting terms based on market conditions.
Adhil Shetty, CEO of Bankbazaar.com, notes a concerning trend:
“Health insurance uptake grew, but fewer Indians now have both life and health coverage. Worryingly, the uninsured population nearly doubled from 3% in 2022 to 5% in 2024. A few months ago, IRDAI confirmed this trend. The regulator’s own data shows a dip in overall insurance penetration driven by declining life insurance adoption. With soaring medical inflation and rising living costs, adequate life insurance is more crucial than ever. Every person with dependents and liabilities must avail term coverage of at least 10x their annual income.”
In these rapidly changing times, staying informed about evolving rules and tougher underwriting standards is essential. This knowledge equips individuals to protect themselves and their families effectively, securing their financial future.
