Life insurers seek reprieve from ban on sale of indemnity health plans


Life insurers are only allowed to sell fixed-benefit health plans, which offer a lumpsum benefit on diagnosis of an ailment. However, these insurers want to sell cashless and reimbursement health policies as well

Life insurance companies are seeking a reprieve from the insurance regulator to either be allowed to sell indemnity health plans or get a special nod to distribute such plans of other insurers.

If life insurers are allowed to sell indemnity plans, it will be good news for customers, as they could have up to 24 new indemnity health plans to choose from.

At present, life insurers are not allowed to sell indemnity health insurance plans. Indemnity health plans offer insurance claims based on the exact cost of treatment. They could either be cashless meaning the insurer directly pays the hospital once the policyholder is hospitalised, or through reimbursement.

Insurance Regulatory and Development Authority of India (IRDAI) rules allow life insurers to sell only fixed-benefit health insurance. These plans pay a lumpsum amount when the policyholder is diagnosed with an ailment and has to undergo a medical procedure at a hospital.

“If we can’t sell indemnity plans, at least let us distribute such products of non-life insurers as combo products. We have requested the regulator for this flexibility or maybe to let us use the sandbox model to sell these,” said the chief financial officer of a large private insurer.

Under the sandbox method, insurers can launch and test a product with a select group of people for a period of six months.

Life insurers sold indemnity products until 2016 but were barred by IRDAI from selling them after health insurers said this took away their core business.

To address this, a nine-member committee was set up in 2020 to study whether life insurers could be allowed to sell indemnity plans. However, IRDAI is yet to take a final decision on this matter.

In the meantime, life insurers want regulatory clearance to start distributing indemnity plans of health insurers as combo plans. This would allow the life insurers to distribute such products using their sales channel.

Life insurers also want a level playing field in the health space. The chief distribution officer of a bank-led life insurer said that the ban on sales of indemnity plans is affecting the health portfolio as a whole.

“Cashless health insurance is very convenient for customers at the time of hospitalisation since we, as insurers, make the direct payment to hospitals. There should be a space for everyone to sell,” he added.

Globally, life insurers are allowed to sell all types of health insurance products. In India, after the change in regulations, the health insurance business of life insurers dropped from around 20-22 percent to less than 10 percent. This was because customers chose to buy health products from non-life or standalone health insurers.


M Saraswathy is a business journalist with 10 years of reporting experience. Based in Mumbai, she covers consumer durables, insurance, education and human resources beat for Moneycontrol.