"Cost-sharing tools like deductibles and co-payments are essential to the sustainability of insurance, but they can weaken the protection insurance is meant to give." Critically examine this in the Indian context.

A deductible (excess) is the first part of an admissible claim that the insured pays. A co-payment is a fixed share of every claim, common in health policies [1]. Both keep insurance pools viable. But in India, households still pay a large share of health costs, so these tools can weaken the financial protection insurance is meant to give.

Why cost-sharing sustains insurance

• Curbs moral hazard: being partly exposed to loss keeps the insured careful, e.g. in motor own-damage (OD) cover [1].
• Filters small claims: low-value claims cost more to process than they pay out. Filtering them cuts time and administrative cost and keeps premiums affordable [1].
• Rewards low risk: the No-Claim Bonus (NCB) gives claim-free policyholders a renewal discount or a higher sum insured [1].
• Enables wider products: lower premiums support IRDAI's push for more product choice under the Insurance Products Regulations, 2024 [2].

How it weakens protection

• Hidden cost of claiming: a ₹2,000 OD claim can wipe out a 50% NCB, raising the renewal premium from ₹5,000 to ₹10,000. The cover is paid for but cannot sensibly be used [1].
• Information gap: buyers often read "excess" as extra benefit. Many learn about the deduction only when they claim [1].
• Weaker logic in health: people rarely choose to fall ill, so a co-pay changes little behaviour. It mostly moves the bill back to families. Out-of-pocket spending was still 39.4% of total health expenditure in 2021-22 [3].
• Equity: a percentage co-pay grows with the bill. It hits older and poorer patients hardest, just as the 2024 framework opens health cover to all age groups [2].

Way forward

• At claim time, insurers should state three figures: the payout after excess, the NCB lost, and the net gain or loss.
• Co-pay terms should be printed in plain words on page one, with caps for senior citizens.
• Public cover with no cost-sharing should be expanded. AB PM-JAY now gives ₹5 lakh cover to everyone aged 70 and above [4].

Cost-sharing is a legitimate tool for keeping insurance viable, not a flaw. It should be set by product type: firmer in motor cover, lighter in health. Backed by clear disclosure, it can keep premiums affordable without weakening protection. This supports SDG 3.8 (universal health coverage).