The Insurance Regulatory and Development Authority of India (IRDAI) has flagged a significant increase in complaints related to unfair business practices in the insurance sector during FY25, even as overall grievances remained largely unchanged. The development highlights growing concerns about mis-selling and misleading sales practices affecting policyholders across the industry.

Surge in Unfair Business Practice Complaints

According to the IRDAI Annual Report 2024-25, complaints categorised under unfair business practices (UFBP) witnessed a notable increase during the fiscal year. The data reveals a concerning trend in consumer protection issues within the insurance sector.

The regulator noted that unfair business practice complaints now account for over 22% of total grievances, marking a significant increase from their previous share. This category primarily encompasses issues related to product suitability, misleading disclosures, and sales practices that do not align with policyholder needs.

Key Areas of Concern

The IRDAI report identified several specific issues driving the increase in unfair business practice complaints:

• Product Suitability: Instances where insurance products were sold without proper assessment of customer needs
• Misleading Disclosures: Cases involving inadequate or deceptive information provided during the sales process
• Inappropriate Sales Practices: Methods that prioritised sales targets over policyholder interests

Life insurance continued to account for a significant portion of such complaints, indicating systemic issues within this segment that require regulatory attention.

Grievance Resolution and Regulatory Response

Despite the increase in complaint volumes, IRDAI reported that most unfair business practice-related grievances were resolved during the year. The regulator noted that complaint outcomes varied, with some cases decided in favour of policyholders, others partially upheld, and some rejected after thorough review.

The regulator has emphasised that insurers must maintain robust internal grievance redressal mechanisms and dedicated committees to monitor claims and policyholder complaints. IRDAI has also issued warnings against misleading sales practices and stressed the importance of conducting root-cause analysis to prevent repeat grievances.

Regulatory Oversight and Consumer Protection

The increase in unfair business practice complaints has raised concerns from a consumer protection perspective, prompting IRDAI to reinforce its oversight measures. The regulator continues to monitor the situation closely and has called for enhanced compliance measures across the insurance industry.

The data underscores the ongoing challenges in ensuring ethical sales practices within the insurance sector, despite regulatory efforts to strengthen consumer protection frameworks. The trend suggests that while overall grievance volumes remain stable, the nature and complexity of complaints are evolving, requiring targeted interventions to address systemic issues in sales and disclosure practices.

The Insurance Regulatory and Development Authority of India has flagged a significant gap between health insurance premium growth and protection outcomes in FY25, despite the sector achieving record performance in claims settlement and premium collection.

Premium Growth vs Protection Outcomes

General and health insurers collected ₹1.17 lakh crore in health insurance premiums during FY25, marking growth of over 9% compared to the previous year. However, IRDAI noted in its latest annual report that this increase did not fully translate into proportionate improvements in coverage quality and protection outcomes.

The sector covered around 58 crore lives under approximately 2.65 crore policies, excluding personal accident and travel insurance. Despite this expansion, IRDAI highlighted that the health insurance protection gap remained significant, particularly in individual coverage.

Claims Settlement Performance Reaches Record High

Non-life and health insurers delivered record performance in health insurance claims settlement during FY25, processing unprecedented volumes while improving efficiency metrics. The industry settled approximately 87% of registered claims compared to 83% in FY24, processing 32.6 million health insurance claims.

Total payouts increased substantially to ₹94,248 crore from ₹83,493 crore in the previous year. However, the average amount paid per claim declined to ₹28,910.00 from ₹31,086.00, attributed to a larger proportion of lower-ticket claims as retail and group health insurance penetration expanded.

Structural Challenges and Coverage Gaps

IRDAI observed that while government-sponsored and group policies accounted for a large share of lives covered, individual policies represented a smaller proportion, indicating limited voluntary adoption of health insurance by households. The regulator pointed to rising healthcare costs as a structural challenge, with net incurred claims increasing during the year.

Cashless settlement continued to dominate claims payments, with approximately 66.35% of the total claim amount paid through the cashless route, largely unchanged from 66.17% in FY24.

Regulatory Focus and Future Direction

IRDAI stressed that premium growth alone does not ensure adequate financial protection if coverage limits, exclusions, and claim settlement experiences do not keep pace with rising medical expenses. The regulator emphasized the need for insurers to improve product design, claims servicing, and transparency to strengthen consumer confidence.

The authority continues to monitor health insurance pricing, claims trends, and grievance data to address gaps between premium growth and policyholder outcomes, while balancing affordability and sustainability for insurers. During the year, IRDAI mandated insurers to work toward 100% cashless claim processing, implementing strict timelines requiring pre-authorisation within one hour and discharge approvals within three hours.