Insurers to pass on GST cut, expect slight demand rise in policies

Insurers will implement GST-free rates from Monday and pass on the full benefit to policyholders, though withdrawal of input tax credit may impact margins over time

Life and health insurers are preparing to implement the new goods and services tax (GST) rates starting Monday. According to industry insiders, companies plan to pass on the full reduction in GST to customers without changing product prices for now.

 

While some insurers are ready with their entire product lineup updated to reflect the new GST rates, others may initially roll out only their best-selling products until the rest are aligned with the revised tax structure.

 

Insurers also expect a slight uptick in demand beginning Monday, as many customers had delayed purchases in anticipation of the new GST rates.

 

“We will be ready with our key products, though some may take a bit more time. We are not revising product prices and will be passing on the full GST reduction to policyholders. System updates are underway, but we’re ensuring that the core products, which account for the bulk of our sales, are ready from Day One,” said the chief executive officer (CEO) of a large private-sector life insurer.

 

Earlier this month, the GST Council announced a complete exemption from GST on all individual life insurance policies — including term, unit-linked, and endowment policies — as well as their reinsurance. The move aims to make insurance more affordable and widen 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 unsure whether the full benefit could be passed on to policyholders. The withdrawal of input tax credit (ITC) is expected to raise operational costs, putting pressure on margins. To protect profitability, insurers may need to reprice products — a process that could take time, according to industry executives.

 

“Everything will be ready on time. We have had nearly two weeks to implement the changes, so we expect a smooth rollout. Starting September 22, all rates will be GST-free. We are passing on the full GST cut to policyholders — at least for now. We’ll assess the situation further and decide on next steps accordingly,” said the CEO of another private-sector life insurer.

 

“Some customers had delayed their purchase decisions in the interim, so Monday will give us a clearer picture of any pent-up demand. That said, I don’t expect a flood of new business immediately,” he added.

 

“We are actively promoting this update across all customer touchpoints, clearly communicating that GST is no longer part of the premium. Customers now only need to pay the net premium amount. To maximise awareness, we have already begun campaigns on social media. Very soon, this update will also be reflected on our website, where all product information is prominently displayed,” Bajaj Allianz General Insurance, one of the largest non-life insurers, said in a statement.

 

“The updated premium structure has been clearly communicated to ensure consistency and transparency across all channels. Our systems are fully equipped to handle this change from Day One, ensuring a seamless transition for partners and customers alike,” the company added. It also said it expects strong customer response, as many policyholders considering higher health insurance cover may now go ahead with that decision, given the improved affordability.

 

“We also expect not just new purchases in health insurance but a significant number of customers upgrading their existing coverage. This includes choosing higher sum insured options and adding super top-up covers, which will further strengthen their financial protection,” the company said.

 

Meanwhile, insurance CEOs had sought some leeway from the finance ministry on input tax credits for individual health and life insurance. They argued that denial of ITC on commissions paid to agents — which attract 18 per cent GST — makes it difficult to deliver the expected reduction in premiums.

 

Last week, however, the Centre clarified that while reinsurance services would be exempt, ITC on other inputs or services will not be available for individual health and life insurance products, since these have been exempted from GST. 

Warming up

• Companies are updating their systems, with core products ready for the GST change
• Loss of input tax credit (ITC) may pressure insurers' profitability and margins
• The Centre clarified that ITC will not be available on services for the exempted policies