Why health insurance keeps failing patients? Look to poor underwriting, provider power
Rising healthcare costs and customer grievances expose critical gaps in India’s health insurance ecosystem — from weak underwriting to lack of provider regulation and product design flaws.
Health insurance continues to dominate public discourse today. It has emerged as the largest segment within non-life insurance and is expected to expand further, driven by rising medical costs and growing demand for healthcare financing.
Medical inflation remains a global concern. Healthcare costs are rising due to rapid technological advances, higher demand for quality care, wage escalation, and, in some cases, defensive medicine. Estimates suggest that healthcare inflation can be two to four times higher than general inflation. While governments bear the primary responsibility for curbing medical inflation, providers and insurers must ensure that insured patients do not inadvertently contribute to it.
The expansion of private healthcare infrastructure into underserved regions and the increasing demand for high-quality care have also driven healthcare expenditures upward. In a system where provider income depends on service volume, patients in areas with a higher density of doctors and hospital beds tend to visit more often and experience higher hospitalization rates.
Underwriting oversights
Recently, customer complaints and dissatisfaction between health insurers and healthcare providers have been rising. Many of these stem from a fundamental lapse: insurers neglecting the principle of “underwriting at the time of acceptance, not at the time of claim."
Robust due diligence during customer onboarding is critical to avoid grievances later. Under pressure to meet top-line growth, some insurers skip proper underwriting initially and revisit it only at claim stage—creating customer mistrust and disputes.
Under the guidance of the regulator and industry bodies, the sector has made significant strides in streamlining definitions, exclusions, clauses, and data standards with active stakeholder participation. However, contentious areas remain—such as repudiations under “non-disclosure," deductions under “Usual and Customary Charges," and the coverage of modern treatments. Resolving these through a transparent, standardized and collaborative framework is essential to reduce friction.
The missing regulator
The demand for a national healthcare regulator has existed for a long time. There should be a single, authoritative nationwide source for registries of hospitals, doctors, diagnostic centres, etc. Alternatively, establishing state-level healthcare regulators and forming a central association of these regulators can help enforce consistent standards, protocols and standard treatment guidelines nationwide.
Governments and political leaders must have the will to pursue this. The unregulated healthcare sector has also been a major factor behind the slow shift from hospital-only to comprehensive health insurance coverage.
Meaningful growth in the sector demands genuine collaboration between insurers and healthcare providers—anchored on customer interest. Having cashless and rate agreements alone is insufficient if customers still end up paying out-of-pocket due to disputes between hospitals and insurers over charges, even when the sum insured is adequate. This issue is even more glaring in high-sum, broad-coverage products, where such gaps lead to deep dissatisfaction.
In a voluntary private insurance environment, competition in provider network management is crucial for effective portfolio control. By leveraging technology and analytics, insurers can monitor outcomes, ensure fair pricing, and enhance customer satisfaction. Customers, in turn, should be empowered to choose insurers based on network quality and service experience.
Challenges in uniformity
Government or universal health schemes can apply uniform criteria, rates, and standards more easily. Yet, these networks remain limited. Attempting to enforce 100% cashless coverage in voluntary insurance could inflate costs, particularly when approvals are extended to hospitals not vetted for empanelment or pricing. Uniformity is difficult in a competitive environment where products, pricing, and service levels differ.
A more practical solution lies in adopting a standardized provider grading framework—based on infrastructure, quality of care, geography, outcomes and cost. An independent body should oversee this continuously. Such a framework can define “customary and reasonable charges," flag excessive provider costs, and guide product design.
Insurers can develop products that reference this framework, with access limited through copayments and deductibles when costs are unreasonable or high. Incentives should encourage the use of high-quality, cost-effective hospitals. This will also motivate providers to compete for higher grades, thereby improving access for customers. Customers would also benefit from transparency and the ability to make informed choices when selecting providers.
Product development needs more research. Many health plans prioritise ease of sale over customer experience. Yet, customers primarily seek seamless hospitalization, adequate coverage, and minimal out-of-pocket expenses. Claim incidence and severity today are largely shaped by product design—and provider behaviour often exploits product gaps.
Ultimately, health insurance must ensure access to appropriate, affordable, and efficient medical care. Achieving this balance requires active participation from every stakeholder—insurers, providers, and regulators alike—to make the ecosystem sustainable and customer-centric.
Shreeraj Deshpande is an independent insurance consultant.
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