GST 2.0: Pent-up demand behind spike in insurance sales on day one

The implementation of nil goods and services tax (GST) on individual health and life insurance policies did not trigger a flood of new sales on Day One, but industry insiders reported a pickup, driven partly by pent-up demand and partly by the issuance of policies that had been deferred between the announcement of the GST cut and its implementation. The industry, however, remains upbeat about the sharp rise in enquiries for fresh policies, which they expect will translate into higher sales in the coming weeks and months.

 

The insurance industry has passed on the full reduction in GST to customers without changing product prices for now.

 

“There is a spike in sales, but mostly it is because of pent-up demand,” said the chief executive of a private sector life insurance firm. 

“Demand, in terms of enquiries, is at the highest-ever levels — up nearly 60 per cent, partly due to pent-up demand — and this pattern is likely to continue. Between September 1 and 22, Google impressions rose over 40 per cent compared to the same period last month. Gradually, this surge in enquiries should translate into more customers buying insurance policies,” said Siddharth Singhal, head of health insurance, PolicyBazaar.

 

“While not many had paused their renewals to take advantage of the lower GST rates, with GST now gone, renewal rates will shoot up. Insurers are passing on the entire benefit, and we do not foresee any repricing in the near future. Overall, this is a positive step that will boost penetration, drive demand in the coming weeks, and encourage more product innovation as insurance becomes more affordable,” Singhal added.

 

Earlier this month, the GST Council announced a complete exemption on all individual life insurance policies — including term, unit-linked, and endowment plans — as well as their reinsurance. The move is aimed at making insurance more affordable and expanding coverage across the country. Similarly, all individual health insurance policies — including family floater and senior citizen plans — and their reinsurance have also been exempted to boost penetration. At the time of the announcement, insurers were uncertain about whether the full benefit could be passed on to policyholders, but for now, the insurance industry has decided to pass on the full benefit until they reprice the products.

 

The withdrawal of input tax credit (ITC) is expected to increase operational costs, putting pressure on margins. While the industry has appealed for an allowance for ITC, the Centre has clarified that ITC on tax paid on other inputs or input services will not be available for individual health and life insurance products, as these have been exempted from GST.

 

To safeguard profitability, insurers may need to reprice products — a process that industry executives say could take time.

 

“Policyholders who had put off their policy renewals in the past 15 days are renewing them today. 

 

There is also an increase in fresh issuances, with people holding off payment until September 22 to avail of the benefits, which is likely to show as a huge jump in sales today. Also, the GST exemption has created some sensation among youth, with them enquiring about higher sum insured and more top-up cover,” said K C Lokesh, convener, Confederation of General Insurance Agents Association of India

 

According to the life insurance distributor, new policy issuances are gradually picking up. “For life insurance, usually Navratri is a dull period, and people hold off policy purchases until after Diwali. There are policies in the pipeline with their risk date starting from September 22, and there will be a rise there. However, otherwise, the growth in policy issuances will be more gradual. We are not seeing a huge increase in sales,” he said.

 

“While it (the GST reform) may require some structural changes in the short to medium term, it would certainly be beneficial for the consumer and, thus, the industry in the long term. As we are speaking to prospective clients and new distributors, all seem to be bullish about this change. It therefore suggests that business momentum should see an uptick in times to come. Fresh prospecting trends may take a couple of weeks, but overall, it’s looking good and we are very supportive of this,” said Parag Raja, managing director and chief executive officer, Bharti Axa Life Insurance.