Insurance premium conundrum: What’s fueling health insurance cost?

Taking cognizance of the consumer complaints against the rising medical insurance premiums in the last two years, the union finance ministry raised concerns with the private general insurers and emphasized on the need to “enhance affordability” and “accessibility” of the non-life insurance products. The concerns were raised during a meeting held by the department of financial services secretary M Nagaraju with the CEOs private sector general insurance companies earlier this week.

“We have received a number of complaints with regard to exorbitantly high insurance premiums, especially in the case of medical insurance. The department of financial services is seized of the matter and we are closely monitoring the complaints,” said a source in the ministry of finance in the context of the meeting held earlier this week. The meeting was held by department of financial services.  

Health premiums hit the roof

Over the past two years, many policyholders have noticed a sharp rise in their health insurance premiums. From metro dwellers to semi-urban policyholders, complaints of steep renewals—sometimes over 25%—are becoming increasingly common.

A LocalCircles survey conducted recently, covering 11,000 individuals across 324 districts, paints a worrying picture. 52% of health insurance policyholders saw their premiums go up by over 25% in the last year alone.

Industry experts point to a perfect storm of medical inflation, higher hospital costs, broader economic pressures, and strategic shifts within the insurance sector.

Expansion cost being passed on

“The health insurance industry in India has witnessed a shift in premium growth, which is largely due to the geographical saturation in urban markets,” explains Bhaskar Nerurkar, Head of the Health Administration Team at Bajaj Allianz General Insurance. Post-COVID, the boom in health insurance demand, particularly for COVID-specific policies, has started tapering off. But despite this, health insurance remains the highest contributing segment in the insurance industry.

This tapering demand in urban centres has pushed insurers to focus on newer, less-penetrated markets. “The opportunity for growth remains significant in semi-urban and rural areas, where a large section of the population is still uninsured,” Nerurkar adds. However, expansion requires investment—into products, distribution networks, and customer education—costs that may ultimately be passed on to policyholders.

Why are premiums rising?

Naval Goel, CEO of PolicyX.com, confirms the trend. “It’s true that insurance premiums, particularly in health insurance, have seen an approximate 14% rise in the last two years.”

A significant part of this increase can be traced to regulatory changes. “The Insurance Regulatory and Development Authority of India (IRDAI) has mandated the inclusion of more benefits in policies—especially for pre-existing diseases and chronic conditions. While this broadens consumer coverage, it also raises costs,” Goel said.

Factors such as individual habits, geographic location, and the presence of lifestyle diseases now play a bigger role in determining how much a consumer pays for health cover. As Goel explains, these elements can significantly push up premiums at the individual level.

How much are consumers paying?

Siddharth Singhal, head (health insurance), Policybazaar, acknowledges that premiums are on the rise but adds important context. “While it’s true that premiums have gone up, data shows that 53% of policyholders face an inflation rate of under 10% and continue to renew their policies with minimal changes. Only 5% of customers see hikes above 30%, typically due to age-related changes,” says Singhal.

Encouragingly, renewals have remained strong. “Renewal rates have grown by nearly 10% in the past two years—clear evidence that customers continue to prioritise health coverage despite the higher costs,” Singhal notes.

Innovations to beat the price pinch

Insurers aren’t blind to consumer concerns. In response, many are launching products that offer increased value over time. One example is cumulative bonuses: a ₹10 lakh plan with a 7x bonus can grow to ₹70 lakh in five years, reducing the cost per ₹1 lakh of coverage from ₹2,700 to ₹524.

Singhal explains further, “These plans include guaranteed annual sum insured increases, and in some cases, unlimited accumulation. Customers are also managing costs by switching to new-age plans, choosing deductibles, or opting for limited hospital networks—moves that can cut premiums by up to 15%.”

Top-up plans are another smart alternative. For example, adding a ₹90 lakh top-up over a ₹10 lakh base plan can give one ₹1 crore in coverage at a significantly lower cost than buying a ₹1 crore base policy.

The GST debate

Some have argued that removing Goods and Services Tax (GST) on insurance premiums could help make them more affordable. But experts warn that this may only offer temporary relief.

“Avoiding GST isn't a real solution,” said a spokesperson familiar with the matter, requesting anonymity. “If the government scraps GST, premiums may drop in the short term, but insurance companies are likely to hike their base prices the following year, matching the earlier GST-inclusive rates. They know consumers are already used to paying that amount.”

In short, while the removal of GST may sound consumer-friendly, in practice, it could allow insurers to quietly increase their margins without delivering any lasting benefit to policyholders.

What lies ahead?

The pressure on health insurance premiums isn’t expected to ease any time soon. The demand for healthcare will continue to rise, especially with India’s ageing population and increasing lifestyle-related ailments. Also, insurers are becoming more agile, offering modular, customisable plans that balance affordability with comprehensive coverage.

As Bhaskar Nerurkar aptly points out, the future lies in inclusive innovation. “Expanding access to semi-urban and rural markets with affordable, need-based solutions will be key to driving sustainable growth.”

In the meantime, policyholders must stay informed, review their plans annually, and explore cost-saving options like top-ups, deductibles, and curated hospital networks.