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Key Points

The GST Council's exemption on insurance premiums is set to make coverage more affordable for consumers. Insurance companies may face short-term profitability challenges due to lost input tax credits. Industry executives believe this move will significantly boost insurance penetration across India. The long-term outlook remains positive with expected growth in demand and financial inclusion.

Key Points: GST Exemption on Insurance Premiums May Hit Insurers Short Term

  • GST exemption removes 18% tax on life and health insurance premiums from September 22
  • Insurers may lose input tax credit eligibility affecting short-term profitability
  • Health insurance premiums expected to reduce by around 15% for consumers
  • Long-term benefits include increased insurance penetration and financial inclusion
3 min read

GST exemption may hit insurers in short term, but long-term gains likely: Executives

Insurance executives say GST exemption on premiums may cause short-term profitability pressure but will boost long-term growth through increased affordability and penetration.

"This move will motivate more families to secure sufficient health protection - Bankim Mapara, Universal Sompo General Insurance"

New Delhi, September 4

Insurance companies are expected to face a setback in the short run following the GST Council's recent exemption on GST, as it could lead to the loss of input tax credit eligibility, said industry experts and executives, adding that the companies, however, will benefit in the long term.

Individual life and health insurance premiums have been exempted from the 18 per cent GST from 22nd September onwards. This includes term insurance, health policies, including family floater and ULIPs.

"For term insurance, GST exemption could result in notable cost reduction, making them more affordable. On the other hand, insurers may lose eligibility for input tax credits. For ULIPs, these products contain a significant investment component; hence, the direct impact of the exemption may not necessarily bring in a reduction of 18% premiums for such a product," said Vaqarjaved Khan, CFA, Senior Fundamental Analyst, Angel One Ltd.

Bankim Mapara, Chief Financial Officer, Universal Sompo General Insurance, said that "the long-term effects will likely be good."

"This move will motivate more families to secure sufficient health protection and reinforce the role of insurance as a financial safety net against increasing medical costs," he added.

Chinmay Jain, Director - Insurance & PPI, Jupiter, expressed a similar sentiment and said, "While insurers may need to recalibrate their cost structures due to the loss of input tax credits, we view this as an opportunity to innovate and streamline operations."

Observing the impact, Smita Singh, Partner, S&A Law Offices, said, "While this move is expected to encourage wider insurance penetration, its actual impact on premiums will depend on how insurers adjust to the revised tax framework."

However, he added that in the long run, this reform will not only strengthen household financial resilience but also align with the broader national agenda of building a more secure and inclusive financial ecosystem.

Earlier in a report, HSBC Securities and Capital Markets (India) has noted that the insurance companies are likely to face short-term pressure on profitability due to the slower repricing of existing policies.

HSBC analysis suggests exemption from GST could reduce health insurance premiums by around 15 per cent. The report said lower premiums are expected to boost demand, and insurance companies could see a 3-6 per cent impact on combined ratios (CR) in the retail health segment, primarily due to slower repricing of renewals, which may take 12-18 months.

The report concludes that GST cuts will bring long-term gains for both insurers and consumers, despite short-term margin pressures. Improved affordability may encourage more households to purchase health cover, supporting broader financial inclusion goals.

Sidharrth Sankar, Partner, JSA Advocates & Solicitors said, "The removal of GST on Life & Health insurance eliminates a major road block to greater insurance penetration."

He added that together with the recent regulatory and Foreign Direct Investment (FDI) reforms, the sector now has all ingredients for sustained growth, which should provide a major tailwind to new investments and M&A in the sector.

Chetan Vasudeva, Senior Vice President - Business Development at Elephant.in, Alliance Insurance Brokers noted that 18 per cent GST on insurance premiums was a psychological and economic deterrent for many middle-income families and first-time buyers for many years.

"By eliminating this cost, the government has rendered insurance products much more affordable, while also sending a message that health security and financial protection are priorities for the nation," Vasudeva added.

- ANI

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Reader Comments

P
Priya S
Good decision by government. Medical costs are already so high in India, at least insurance becomes more accessible now. Hope insurers pass on the full benefit to customers.
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Michael C
As someone who works in finance, I appreciate the balanced view here. Short-term pain for insurers but long-term growth for the sector. This is how good policy making should work.
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Ananya R
Just checked my health insurance premium - it should reduce by about 15%! This is a huge relief for our family budget. More people should now consider getting insured. 💪
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Sarah B
While I support the exemption, I hope the government ensures that insurance companies actually pass on the savings to consumers. There should be proper monitoring mechanism.
V
Vikram M
Great move for financial inclusion! Many Indians avoid insurance because of the cost. Now with lower premiums, more families can secure their future. Jai Hind! 🇮🇳

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