New Delhi, April 28 -- Nearly 70% of Indians lack meaningful health insurance. Our penetration rate- just 0.35% of GDP-is lower than that of China, Hong Kong and Taiwan. The conventional explanation is that Indians either do not understand insurance or cannot afford it.

But in reality, the problem is not behavioural as much as the fact that Indian insurers, for the most part, lack the population-level health data that they need to price risk accurately.

When premiums are too high relative to actual risk, healthy people-who know they are unlikely to need expensive care-see no reason why they should buy coverage.

When that happens, the risk pool gradually shrinks until it consists largely of those who expect to make claims. This, in turn...