Star Health under IRDAI lens over claim settlement; insurer says routine process

The Insurance Regulatory and Development Authority of India (IRDAI) has identified significant deficiencies in the claim settlement practices of stand-alone health insurer Star Health and Allied Insurance. While formal investigations are ongoing, it is expected that the regulator will take appropriate action against the insurer, as per a report by CNBC-TV18

In addition to Star Health, IRDAI has also examined the operations of 8-10 other general and health insurers in the country, but no information regarding any punitive measures against them has been disclosed.

The scrutiny conducted by IRDAI focused on various aspects of claims handling, including the number of claims rejected and approved, deductions made, queries raised by policyholders, and so on.

This is a day after Star Health's receipt of 25 tax demand orders in multiple zonal offices across states such as Haryana, Delhi, Maharashtra, Tamil Nadu, Telangana, and Karnataka, various GST and Central Excise authorities issued orders totaling approximately Rs 49 crore, inclusive of penalties.

In response to the report, Star Health has stated that they have not yet been informed by IRDAI about the matter.

In a regulatory filing, Star Health and Allied Insurance said: "We would like to highlight that IRDAI conducts regular audits and thematic inspections as part of its regulatory oversight, in line with the framework outlined in its master circulars. These assessments are a routine process to ensure compliance across the industry. The media statement appeared to be speculative and motivated in nature, and we have not received any communication on this subject from the regulator. We continue to focus on enhancing our claims processes and strengthening customer trust by adhering to the highest standards of service and compliance."

Star Health and Allied Insurance Company Ltd stock hit its 52-week low at Rs345.45 on Tuesday following the report.

What's the case

Based on IRDAI's handbook of insurance statistics, Star Health recorded an incurred claim ratio of 66.47% for the financial year 2023-2024. This ratio indicates that for every Rs 100 collected in premiums, Star Health paid out approximately Rs 67 towards settling policyholder claims during that period.

This figure slightly surpasses the overall incurred claim ratio of stand-alone health insurers, which was 63.63% in 2023-24, but falls significantly below the industry's cumulative incurred claim ratio of 82.52% for all health and general insurers operating in the country during the same period, the report stated.

According to the latest IRDAI report, Star Health and Allied Insurance Co. Ltd. achieved the lowest claim settlement ratio among all stand-alone health insurers within 3 months, at 82.31% for the fiscal year 2023-24. As per the IRDAI handbook, Star Health also declined a total of 2,96,356 claims during the same period.

In December 2024, IRDAI issued a show cause notice to Star Health and Allied Insurance for alleged violations of various regulations and guidelines. The insurer mentioned in a regulatory filing that the show cause notice, dated 4 November 2024, contained observations from a general inspection conducted between 31 January 2022 and 11 February 2022. These observations focused on the business and operational aspects of the Company.

"Based on the general inspection during the period 31 January 2022 to 11 February 2022 IRDAI has issued its observations through the show cause notice (SCN) dated 4 November 2024. These observations relate to business and operational aspects of the Company," the insurer had said at that time.

Star Health and Allied Insurance closed Tuesday 3.29% down at Rs 347.25 on the BSE, while the 30-share Sensex ended the day flat at 78,017.19 points.