GST cuts: Insurers still negotiating commission revisions with distributors

Life insurers have formed committee to discuss the capping of distributor commission

More than two months after rationalisation of goods and services tax (GST) on individual life-insurance premiums and the withdrawal of input-tax credit (ITC), life-insurance companies are still negotiating commission revision with distributors.

 

While revision in commission for the agency channel has been finalised and put into effect, discussion with large bancassurance distributors is on, multiple sources aware of the development said. 

Smaller insurers have passed it on to their channel partners, a source added. 

Sources in the know said a large part of negotiations with distributors had been completed, and the rest was in its final stages.

Some large banks are taking extra time to adjust themselves with the impact of the withdrawal of input-tax credit (ITC). 

Additionally, the industry is debating the introduction of a commission cap, which could exist with regulations on expenses of management. 

The industry, under the aegis of the Life Insurance Council, has formed a committee to build a consensus on the matter, following which it will submit a representation to the insurance regulator by the end of 2025-26, sources added. 

Although discussion on commission revision is on, all insurers have passed on the full benefit of GST rationalisation on premiums to consumers. 

According to industry insiders, the impact of the removal of input-tax credit is estimated to be around ₹15,000 crore for the life-insurance sector. 

Meanwhile, insurers are taking measures to protect their margins, including tweaking their product mix to focus more on margin-accretive products, reducing costs, and expanding into areas they have not traditionally tapped. 

“The manufacturer, distributor, and vendors will be taking the bulk of the impact. The benefit has been passed on. As we go ahead, we will see a change in the product mix helping us manage the impact,” Tarun Chugh, managing director and chief executive officer (MD & CEO), Bajaj Life Insurance, had said in an interview to Business Standard last month. 

The GST Council, in September, announced an exemption from GST for all individual life insurance policies — including term, unit-linked, and endowment policies — as well as their reinsurance. The move was to make insurance more affordable and widen coverage. 

Similarly, all individual health-insurance policies — including family floater and senior citizen plans — and their 

reinsurance have been exempted to boost penetration. 

Following GST rationalisation, the life and non-life insurance segments in November posted over 20 per cent premium growth. Such growth was for the first time this financial year (FY26).

 

Life insurers reported nearly 23 per cent year-on-year (Y-o-Y) growth in new business premiums (NBP) to ₹31,119.6 crore in November while non-life insurers recorded a 24.17 per cent Y-o-Y increase to ₹26,897.4 crore during the same period.