The New Face Of Insurance Mis-selling Is Digital, Instant, And Harder To Detect

By Deepak Bhuvneshwari Uniyal, Co-Founder & CEO, Insurance Samadhan

Insurance has always been a complex financial product. Unlike most consumer purchases, it is not simply about what is promised at the time of sale, but about what is delivered at the time of claim.

Every insurance policy comes with conditions, exclusions, waiting periods, sub-limits, co-payments, and claim-related clauses that can significantly impact the final benefit received by the policyholder. Yet, in today's increasingly digital insurance ecosystem, the buying journey is often reduced to a comparison of premiums and a handful of highlighted features.

The result is a growing gap between what customers believe they have purchased and what their policy actually covers.

When Simplicity Becomes Oversimplification

Digital platforms have made insurance more accessible than ever before. Policies can now be purchased in minutes with minimal paperwork and instant issuance. While this convenience has helped improve insurance penetration, it has also created a new challenge: customers are making complex financial decisions based on an incomplete understanding.

Take health insurance as an example.

A customer may select a policy with a room rent limit of 1 per cent of the sum insured because it comes with a lower premium. On the surface, the difference may appear insignificant. However, the implications can be substantial during hospitalisation.

If a policy allows a room rent of Rs 5,000 per day and the policyholder chooses a room costing Rs 7,000 per day, the additional liability is often not limited to the Rs 2,000 difference. In many cases, proportionate deduction clauses apply, reducing not only the room rent reimbursement but also several other hospitalisation expenses linked to the room category.

As a result, a claim that the customer expected to be fully covered can leave them with a significant out-of-pocket expense.

Similarly, important policy provisions such as disease-specific caps, treatment sub-limits, co-payments, waiting periods, and exclusions frequently receive little attention during the purchase process. Customers are naturally attracted to lower premiums and attractive marketing messages, but the finer details that ultimately determine the claim experience often remain poorly understood.

The Rise of Digital Mis-selling

Traditionally, insurance mis-selling was associated with agents providing incomplete or misleading information. Today, the nature of mis-selling is changing.

The issue is no longer just about what is being said. Increasingly, it is about what is not being understood.

In many digital journeys, critical information may technically be available within policy documents, product brochures, or terms and conditions. However, customers are rarely encouraged to engage with these details in a meaningful way.

The objective of many digital interfaces is to simplify the purchase process. Unfortunately, this often results in the simplification of the decision itself.

When customers are guided primarily by premium comparisons, star ratings, and a few prominent product features, there is a risk that important coverage limitations remain unnoticed until a claim arises.

Embedded Insurance: Expanding Access, Creating New Risks

One of the fastest-growing trends in the insurance industry is embedded insurance.

Today, insurance is routinely offered while booking flights, purchasing electronics, applying for loans, reserving hotel rooms, or completing e-commerce transactions. The model has undoubtedly increased accessibility and brought insurance to consumers who may otherwise never have considered purchasing it.

However, it has also encouraged a new form of impulse buying.

Travel insurance is a classic example. Millions of travellers purchase coverage with a single click while booking tickets online. The primary objective is usually to complete the booking quickly, not to understand the insurance contract.

As a result, very few customers review the detailed terms governing trip cancellations, baggage loss, medical emergencies, pre-existing conditions, exclusions, or documentation requirements.

The policy is often evaluated only when a claim occurs. Unfortunately, that is also when many customers discover that their expectations and the actual coverage are not aligned.

Convenience Cannot Replace Understanding

The insurance industry's digital transformation has delivered significant benefits. Faster onboarding, seamless customer experiences, instant policy issuance, and paperless transactions have all contributed to greater efficiency and accessibility.

However, convenience should not come at the cost of informed decision-making.

A policy may be easy to buy, but that does not automatically make it easy to understand.

As insurance becomes increasingly embedded, digital, and automated, the industry must ensure that customer comprehension keeps pace with technological innovation. Transparency cannot be measured solely by the availability of information. It must also be measured by how effectively that information is communicated and understood.

The future challenge for insurers, distributors, and regulators will not simply be increasing insurance adoption. It will ensure that customers fully understand the protection they are purchasing before they need to rely on it.

Because in insurance, the true value of a policy is never tested at the time of purchase. It is tested at the time of claim.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)