Artificial Intelligence (AI) is reshaping industries worldwide, and insurance is no exception. Insurers are using AI to automate claims, detect fraud, and manage risks more efficiently.
But when it comes to health insurance, where lives are at stake, AI’s role has already become deeply controversial. Globally, especially in the U.S., AI is being used to deny claims and prior authorizations at scale, raising red flags for regulators, doctors, and patients.

India too is on the brink of adopting AI more broadly in claims processing. The question is: will AI help policyholders, or make their struggle worse?

The U.S. experience: AI and claim denials

• A 2024 AMA survey found that 61% of U.S. physicians fear insurers’ use of AI is increasing prior authorization denials, overriding medical judgment.
• Some AI systems, like nH Predict, allegedly produced denial rates up to 16× higher than normal.
• Lawsuits revealed that 90% of AI-driven denials were overturned on appeal, proving they were often wrongful to begin with.
• California passed the Physicians Make Decisions Act (2024), banning insurers from relying solely on algorithms for claim approvals.

AI can speed up processing, but without oversight, it can also systematically block rightful care.

India’s health claim reality today

Even without AI, Indian health insurance claims are a battlefield:

• ₹26,000 crore worth of health claims were denied in FY24 (IRDAI).
• That’s 11% of all claims outright rejected, with another 6% stuck in limbo.
• Nearly half of policyholders surveyed by LocalCircles reported facing serious claim issues: outright rejections, partial settlements, or delays.
• Platforms like InsuranceSamadhan handled 14,621 complaints in FY25, 76% relating to health claims.

For the average Indian, getting a claim paid is already difficult. Add opaque AI denials, and the situation could become disastrous.

Could AI make things worse in India?

If Indian insurers adopt AI like in the U.S., here’s what could happen:

• Large scale denials: AI may reject claims in seconds, with little to no explanation.
• Opaque decisions: Algorithms rarely disclose why they rejected a claim. Patients can’t contest what they can’t see.
• Weakened appeals: India’s Insurance Ombudsman already lacks enforcement power. If appeals are left to challenge AI, most policyholders won’t stand a chance.
• Health inequality: Vulnerable groups such as rural families, low-income workers, or those with limited literacy may struggle most against automated rejections.

In short, AI could widen the trust gap between insurers and policyholders.

But, is it possible for AI to be actually useful?

AI can be a powerful ally in the Indian health insurance field if used responsibly:

• Fraud detection: AI can flag duplicate or fraudulent claims, protecting honest policyholders from inflated premiums.
• Faster approvals: When paired with human oversight, AI can help approve straightforward claims within minutes.
• Error reduction: AI can catch clerical mistakes, missing documents, or mismatched codes before they cause delays.
• Predictive analytics: Insurers can design fairer premiums by using AI to assess risk more accurately.

If implemented right, AI can speed up claims without harming the insured.

What safeguards does India need?

For India to benefit from AI in health insurance, it is important to have strong checks such as:

1. Human oversight: No claim should be denied solely by an AI system. A licensed medical professional on the insurer’s claims team must review denials.
2. Transparency: Insurers must disclose when AI is used and explain the reasons for rejection in plain language.
3. Right to appeal: Policyholders should get simple, fast-track appeals against AI-assisted denials.
4. Regulation: IRDAI must issue AI-specific regulations, modeled after California’s law and the U.S. CMS directives.
5. Equality: AI models must be tested for bias, especially against rural, elderly, and low-income claimants.

The risk of doing nothing

Without such safeguards, India risks:

• Higher denial rates: One in 10 claims already denied; AI could make this worse.
• Erosion of trust: Insurance is already viewed with suspicion in India; AI-driven denials may deepen mistrust.
• Financial distress: Families buy health insurance to avoid medical bankruptcy. Wrongful denials defeat this very purpose.
• Widening inequality: AI could unintentionally punish those less equipped to challenge complex processes.

insurancepe believes technology must protect, not punish the insured. AI should simplify processes, detect fraud, and improve transparency, but never stand between patients and their care. Insurance is about trust, and trust cannot be automated.

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