Efficient, Transparent, Fair Underwriting for Health Insurance

The Indian health insurance sector is currently grappling with a dual crisis: a sharp rise in mis-selling complaints and a systemic failure in underwriting due diligence. While the industry saw record premium collections of ₹1.27 lakh crore in FY25, this growth has been accompanied by a significant surge in consumer dissatisfaction during the claim settlement process. Data from the Insurance Regulatory and Development Authority of India (IRDAI) reveals that grievances categorized under "Unfair Business Practices" (UFBP)—which includes mis-selling and misleading disclosures—among life insurers rose by approximately 14.3% in FY25, reaching 26,667 cases.

The Menace of Mis-selling and "Push" Sales

Mis-selling in India often manifests as selling products without proper disclosure of terms, conditions, or suitability. A study in March 2025 indicated that nearly three out of five respondents reported experiencing some form of mis-selling, with 30% canceling policies because they felt trapped by false promises.

The issue is particularly acute in intermediated channels like bancassurance. In FY25, banks accounted for 8.2% of health insurance premium income, yet this distribution structure often encourages "push" selling rather than need-based advice. Common tactics include skipping details about waiting periods for pre-existing conditions (PEDs) or pressuring customers to switch existing policies, which resets waiting periods and jeopardizes accrued benefits.

Underwriting Gaps and Post-Claim Investigations

A "burning issue" for the industry is the stark difference between aggressive, frictionless sales and defensive, skeptical claim processing. In their drive to acquire customers, many insurers issue policies with minimal medical underwriting, relying almost entirely on self-declarations. However, when a large claim arises, insurers often "slam the brakes" and initiate in-depth investigations that should have been conducted at the onboarding stage.

This lack of upfront due diligence leads to a high rate of claim repudiation. According to the Council of Insurance Ombudsman (CIO) 2023-24 report, a staggering 95% of health insurance complaints were related to partial or total claim rejections. The financial impact is immense, with health insurance claim rejections rising to ₹26,000 crore in FY24, a 19% increase from the previous year. Common grounds for rejection include:

• Non-disclosure of PEDs: Accounts for 30-40% of rejections.

• Waiting Periods: 25% of claims are rejected because they were filed during the initial or PED waiting period.

• Policy Exclusions: 25% of rejections are due to treatments not covered under specific policy terms.
  

Regulatory Response and Industry Outlook

To address these systemic issues, the IRDAI has introduced several mandates under the Master Circular on Health Insurance (May 2024):

• Customer Information Sheet (CIS): Insurers must provide a simplified document highlighting sum insured, exclusions, sub-limits, and waiting periods in plain language to eliminate "fine print" confusion.

• Claims Review Committee (CRC): No claim can be repudiated without approval from this committee to ensure fair oversight.

• Cashless Everywhere: Insurers are mandated to strive for 100% cashless settlements, deciding on authorizations within one hour of request and final discharge within three hours.

• No Fresh Underwriting on Renewal: Insurers cannot resort to new underwriting at renewal unless the sum insured is increased.
  

Despite these reforms, the trust deficit remains a challenge. While the industry's claim settlement ratio reached a record 87% in FY25, the rise in ombudsman cases — with health insurance complaints alone jumping 21.7% to 31,490 in 2023-24, and surging a further 41% in FY25 to 1,37,361 — indicates that policyholders are increasingly forced to seek legal redress, with the pace of grievances accelerating sharply year on year. Bridging this gap requires insurers to shift from a "buyer beware" stance to exercising proper due diligence at the point of sale, ensuring they truly understand the risk they are purchasing before a medical emergency occurs.

The way forward

Integrating AI bots into the medical underwriting process offers a structural solution to the "trust deficit" in Indian health insurance. By shifting the responsibility of data collection and disclosure from potentially biased human intermediaries to an objective, digital interface, insurers can ensure that the policy is underwritten correctly from day one.

Here is how AI bots can bridge the gap between sales and claims:

Eliminating "Oral Assurances" via Standardized Interrogation

A primary cause of mis-selling is the agent’s tendency to gloss over medical history to close a sale. AI bots replace this variable with a standardized medical interview.

• Persistent Probing: Unlike a human agent who might skip questions, a bot can be programmed to use branching logic. If a customer mentions "occasional headaches," the bot can immediately trigger a sub-set of questions about hypertension or neurological history.

• Digital Audit Trail: Every response is timestamped and recorded. This prevents the common claim-time dispute where a customer says, "The agent told me I didn't need to mention my minor surgery from five years ago."
  

Interactive "Condition-Specific" Education

Instead of a 40-page PDF policy document that few read, AI bots can provide just-in-time disclosures.

• Contextual Warnings: If a customer discloses a pre-existing condition like Diabetes, the bot can immediately trigger a pop-up or voice note: "Note: This condition will have a 24-month waiting period. You cannot claim for diabetes-related complications until October 2026."

• Confirmation of Understanding: The bot can require the customer to solve a quick "understanding check" (e.g., "Based on what we discussed, when can you first claim for your pre-existing heart condition?") before proceeding to payment.
  

 Impact on the Claim Settlement Process

By strengthening the "front-end" of the policy lifecycle, AI bots directly simplify the "back-end":

Feature	Impact on Claim Processing
Full Disclosure Record	Reduces "Repudiation for Non-disclosure" as the evidence of disclosure is indisputable.
Automated Verification	Shortens the investigation window; if the bot verified the records at entry, the claim can be fast-tracked.
Clear Exclusion Mapping	Customers are less likely to file "frivolous" claims for excluded items, reducing the volume of rejected claims.

The "Moral Hazard" Protection

By making the underwriting process rigorous and transparent, the AI bot acts as a neutral mediator. It protects the insurer from fraudulent claims and protects the customer from "technical rejections" based on fine print they were never told about.