‘Excess’: Insured, but still responsible

1. At a Glance

• An excess, also called a deductible, is the first part of an admissible insurance claim that the policyholder pays out of their own pocket. The insurer pays only what is left above that amount [1].
• The excess has two jobs. It discourages small claims, and it cuts the time and administrative cost of processing them. It affects both how much the insurer pays and whether a claim is filed at all [1].
• The No-Claim Bonus (NCB) works separately from the excess. It rewards years without a claim, either as a renewal-premium discount or as a higher sum insured, depending on the policy [1].
• UPSC relevance: GS-III (insurance sector, financial inclusion, consumer protection in financial services). It also connects to how insurance is regulated (IRDAI) and to the economics of moral hazard and risk-sharing (excess and co-payment).

2. Why in the News

• The Hindu's Cover Note column (K. Nitya Kalyani) ran "'Excess': Insured, but still responsible" on 26 October 2026, page 13, Chennai print edition [1].
• It follows an earlier instalment, "Policy 'excess' does not mean more for you", published on 5 October 2026 [1].
• The broader backdrop is IRDAI's ongoing changes to retail insurance products, such as the Insurance Products Regulations, 2024, which require insurers to offer health plans to all age groups [2].

3. Background & Evolution

• Why an excess exists: policyholders bear some of the cost themselves. This keeps them careful and keeps insurers from being flooded with low-value claims that cost more to process than they pay out [1].
• Health-insurance version: some health policies use a co-payment, where the insured pays a share of every claim. This is a related cost-sharing tool [1].
• December 2022: IRDAI proposed long-term motor cover (3 years for cars, 5 years for two-wheelers). The draft said the NCB that applies to one-year own-damage (OD) policies would also apply to long-term policies [3].
• April 2024: the Insurance Products Regulations, 2024 required insurers to offer health insurance to all age groups, opening cover to senior citizens [2].

4. Core Static Facts

Term	Meaning / Fact	Source
Excess / Deductible	First portion of an admissible claim that the insured bears	[1]
Purpose of excess	Discourages small claims; reduces administrative and time costs	[1]
Behavioural effect	Changes whether a claim is made, not just how much is paid	[1]
Co-payment	Cost-sharing used in some health policies	[1]
No-Claim Bonus (NCB)	Reward for claim-free years: renewal-premium discount or higher sum insured, depending on policy type	[1]
NCB loss	An admissible claim can wipe out some or all of the accumulated NCB	[1]
NCB applies to	Own-damage (OD) premium in motor policies (worked example)	[1]
Insurance Products Regulations, 2024	Insurers must offer health plans to all age groups	[2]

Worked example (excess) [1]

• Excess ₹1,000, loss ₹2,500, so the claim would be ₹1,500. The insured may decide it is not worth filing.

Worked example (NCB trap) [1]

• OD premium before NCB: ₹10,000. Accumulated NCB: 50%, so renewal costs ₹5,000.
• An admissible OD claim of only ₹2,000 can remove the whole NCB, so renewal costs ₹10,000.
• Net result: ₹5,000 of discount lost to recover ₹2,000.

5. Multi-Dimensional Analysis

Economic

• The excess deals with moral hazard by keeping the insured partly exposed to loss. This keeps premiums affordable for everyone in the pool [1].
• Fewer small claims means lower claim-handling costs, which supports insurer combined ratios and premium stability [1].
• The NCB lowers future premiums for low-risk policyholders, a form of experience rating [1].

Social / Consumer

• Excess, co-payment and NCB loss are often misunderstood. Policyholders may file claims that cost them more in lost NCB than they receive [1].
• Cost-sharing in health cover (co-payment) can be heavy for older and low-income insured people. This matters more now that the 2024 rules opened health cover to all ages [1][2].

Ethical / Governance

• Clear disclosure of the excess, co-payment and NCB rules is a consumer-protection issue. The column exists to close an information gap for buyers [1].
• Regulators also have to balance long-term products (lower renewal friction) against keeping NCB portability and fairness [3].

Administrative / Regulatory

• IRDAI shapes product structure through drafts and regulations: the 2022 long-term motor proposal and the 2024 Insurance Products Regulations [3][2].

6. Recent Developments (last 12–18 months)

• 5 Oct 2026: Cover Note column explains that a policy "excess" does not mean extra benefit for the insured [1].
• 26 Oct 2026: follow-up column explains why an excess exists and how NCB loss should guide whether to claim [1].
• The searches returned no whitelisted official circulars from 2025–26 on excess or NCB. Check irdai.gov.in for the latest Master Circulars.

7. Prelims Hooks

• An excess and a deductible mean the same thing: the first part of an admissible claim that the insured bears [1].
• An excess reduces the insurer's payout. It does not add any benefit for the policyholder [1].
• Main stated reason for an excess: discourage small claims and cut administrative cost [1].
• Co-payment is the health-insurance form of cost-sharing [1].
• NCB rewards claim-free years, as a premium discount or a higher sum insured [1].
• In motor insurance, the NCB discount in the worked example applies to the own-damage (OD) premium [1].
• One admissible claim can cancel all of the accumulated NCB [1].
• The Insurance Products Regulations, 2024 (IRDAI) require health insurance to be offered to all age groups [2].
• IRDAI's Dec 2022 draft proposed 3-year motor cover for cars and 5-year cover for two-wheelers [3].
• Under that draft, the existing one-year OD NCB would also apply to long-term policies [3].

8. Why the Real Bar for Claiming Is Six Times the Stated Excess

• The No-Claim Bonus (NCB) works like a second, hidden excess
• In the column's example, the stated excess is ₹1,000 and the accumulated NCB is worth ₹5,000 at renewal [1].
• One admissible claim can wipe out the whole NCB [1]. So a claim pays off only if the payout (loss minus ₹1,000) is more than the ₹5,000 the policyholder would lose.

• The loss must therefore be above about ₹6,000 before claiming makes sense. That is six times the excess written in the policy.

• Even ₹6,000 understates the real cost

• The NCB rewards claim-free years [1]. Once it is lost, it has to be built up again one claim-free year at a time.

• So a claim also costs the discounts of the next few renewals, not just the next one.

• The NCB rewards people who do not claim, not people who drive safely

• Experience rating (charging each person according to their own past claims) is meant to give low-risk people lower premiums [1].
• But the insurer only sees claims, not accidents. A driver who quietly pays for ₹5,000 of repairs looks exactly like a driver who had no accident.
• So the discount partly measures how well a person understands the policy. It does not only measure risk.

9. Does the Policyholder End Up Paying Twice?

• The strongest objection
• The policyholder pays a premium to move risk onto the insurer. Then the excess and the NCB-loss rule push much of that risk back to them [1].
• In the column's example, a valid ₹2,000 claim costs ₹5,000 at renewal [1]. For losses of this size, the person is paying for cover they cannot sensibly use.

• The insurer gains both ways: it collects the premium and avoids the claim.

• The honest answer

• Small claims cost more in time and paperwork than they are worth. Keeping them out holds premiums down for everyone in the pool [1].

• Insurance is meant for losses a household cannot absorb, not for every small dent. Paying small repairs yourself is the trade you make for a cheaper premium.

• What the objection gets right

• The trade is fair only if the buyer knows about it when buying, not when claiming.
• The word "excess" itself misleads. The column had to explain that it does not mean extra benefit [1]. If buyers misread the basic term, many will not see the NCB arithmetic coming.

10. Why Cost-Sharing Hurts More in Health Than in Motor

• Moral hazard is weaker in health
• Moral hazard (people taking less care because they are covered) is the main reason for an excess [1].
• A car owner can drive more carefully. A patient rarely chooses to fall ill or to be admitted to hospital.

• So in health, a co-payment (a share of every bill the insured pays) does less to change behaviour. Mostly it just moves part of the bill back to the family.

• That money becomes out-of-pocket expenditure

• Out-of-pocket expenditure, or OOPE (health spending paid directly by households, not by government or an insurer), fell by 39% as a share of total health expenditure between 2013-14 and 2021-22 [4].
• Over the same period, government's share rose from 28.6% to 48% [4].

• Private health insurance paid for only 7.4% of total health expenditure in 2021-22 [4]. Every co-payment shrinks that small share further.

• Opening cover to all ages makes this matter more

• Since the Insurance Products Regulations, 2024, insurers must offer health plans to all age groups [2].
• Older people claim more often and have bigger bills. A percentage co-pay grows with the bill, so the households now joining the system carry the most cost back.

11. What IRDAI and Insurers Should Change

• IRDAI should make insurers show the cost of a claim before it is filed
• When a claim is reported, the insurer should state three figures: the payout after excess, the NCB that will be lost, and the net gain or loss.

• Today the policyholder has to work this out alone. A newspaper column had to explain it [1].

• IRDAI should settle the NCB rule for long-term motor cover before it becomes final

• The 2022 draft said the one-year own-damage NCB would also apply to 3-year and 5-year policies [3].

• The final rule must say what a claim in year one does to the NCB for the remaining years. If it is unclear, the hidden cost of claiming grows with the length of the policy.

• Insurers should show co-payment terms in plain words on the first page of health policies

• The 2024 rules brought new, often older, buyers into health cover [2].
• With insurance paying only 7.4% of health spending [4], widening cover reduces family health costs only if buyers understand how much of each bill stays with them.

12. Anchors for Answers

• Data: Out-of-pocket health expenditure fell 39% as a share of total health expenditure, 2013-14 to 2021-22. Government's share rose from 28.6% to 48% [4]
• Data: Private health insurance paid for 7.4% of India's total health expenditure in 2021-22 [4]
• Report/Committee: National Health Accounts Estimates for India, 2021-22 [4]
• Law/Case: IRDAI Insurance Products Regulations, 2024: health cover must be offered to all age groups [2]
• Data: Column's NCB example: a ₹2,000 claim costs ₹5,000 of renewal discount [1]

13. Mains Relevance

• GS-III: Indian economy, mobilisation of resources; insurance sector reforms; inclusive growth and financial inclusion.
• GS-II: regulatory bodies (IRDAI); consumer protection in services.
• Possible questions: 1. "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. 2. Explain moral hazard and adverse selection in insurance markets. How do instruments such as excess, co-payment and no-claim bonus try to address them? 3. IRDAI's recent product reforms aim to widen insurance coverage. Assess them in light of India's low insurance penetration.

14. Related Topics to Study Next

• IRDAI: structure and powers. It is the regulator that designs and approves these product rules.
• Insurance penetration and density in India. These give the macro context for retail insurance reforms.
• Motor Vehicles Act and mandatory third-party insurance. Explains why third-party cover is compulsory while OD cover is optional.
• Ayushman Bharat PM-JAY. Public health cover with no co-pay, a useful contrast to private cost-sharing.
• Moral hazard and adverse selection. The core economic ideas behind the excess and NCB.
• Insurance Products Regulations, 2024 and IRDAI Master Circulars. The current regulatory baseline [2].
• Insurance Ombudsman and consumer grievance redress. The channel for disputes over claims and deductions.

15. NCERT Concepts to Revise

• Moral hazard (Economy): Explains why insurers use an excess: people take less care when fully covered against loss.
• Adverse selection (Economy): Companion insurance-market problem to moral hazard; cost-sharing tools like excess and co-payment help manage both.
• Insurance Regulatory and Development Authority of India (Polity): IRDAI is the regulator behind the product rules and regulations the note discusses.
• Consumer protection (Economy): Clear disclosure of excess, co-payment and NCB rules protects policyholders from unpleasant surprises at claim time.
• Insurance penetration (Economy): Gives the macro context for why IRDAI reforms aim to widen insurance coverage in India.

16. Common Errors / Trap Areas

• "Excess" means extra cover. Wrong. It is the part the insured pays, and it reduces the insurer's payout [1].
• Mixing up excess and NCB. They are separate. The excess applies to each claim. The NCB is a renewal reward that a claim can wipe out [1].
• Deductible vs co-payment. A deductible is a fixed first portion of the loss. A co-payment is a cost-share common in health policies. Do not use the terms interchangeably [1].
• NCB covers the whole premium. In the motor example it applies to the OD component only [1]. Secondary (non-whitelisted) sources also say NCB does not apply to the third-party premium and that the standard ladder runs from 20% to 50%. Check IRDAI before relying on this.
• The 2022 long-term motor proposal was a draft. Do not quote it as final regulation without checking [3].