A month after GST rationalisation, affordability boosts insurance sales

Insurers pass on the full tax benefit to customers, but withdrawal of input tax credit is pushing them to trim commissions, rework product mix and absorb higher costs

A month after the implementation of zero goods and services tax (GST) rates on individual life and health insurance premiums, insurers have passed on the full benefits to customers, driving a surge in sales and enquiries.

 

However, back-end challenges remain, particularly around managing the impact of the withdrawal of input tax credit (ITC).

 

Insurers have indicated that they will pass on some of this impact to distributors and adjust their product mix to mitigate the effect, though margins are expected to take a hit in the short term.

 

Insurers are hoping with GST on premiums being reduced to 0, the affordability of insurance products will increase. And, it will lead to higher sales, going forward, which will offset the short-term pain they are enduring.

 

“The protection category, which is health and life insurance, has shown up fairly well in the demand patterns. There was a massive upsurge in demand, with also an increase in conversions. There is also a change in consumption pattern with people opting for higher sum insured or multi-year policies,” said Amit Chhabra, chief business officer (CBO) of General Insurance, Policybazaar.

 

In early September, the GST Council announced a complete tax exemption on all individual life and health insurance policies, and their reinsurance have also been exempted to boost penetration.

 

In a post earnings’ call, Anup Bagchi, managing director (MD) & chief executive officer (CEO), ICICI Prudential Life Insurance, said: “The early trends indicate a positive response after the GST exemption on life insurance. We have observed growth in website traffic, lead volumes, and conversion rates across product segments, indicating enhanced customer traction.” 

 

Vibha Padalkar, MD & CEO, HDFC Life Insurance, in an interview with Business Standard, said that the company has witnessed more than 50 per cent growth in its retail term life insurance products in September.

 

Meanwhile, insurers have said that they plan to use multiple levers, including renegotiating commissions with distributors and other operating expenses (opex) optimisation measures, to reduce the impact of withdrawal of ITC.

 

“…reducing distributor commission is one lever. We are also looking at improving the product mix — offering more profitable products, cutting costs,” Padalkar added.  

 

Sharad Mathur, MD & CEO of Universal Sompo General Insurance, said, “Some of the insurers have revised distributor payout structures effectively reducing commissions by 15-18 per cent… For the health insurance sub-segment, the tax relief is a positive lever to drive growth. Insurers who act quickly to seize the demand opportunity (via digital, outreach to under-penetrated segments) may gain market share.”

 

According to Animesh Das, MD & CEO, ACKO General Insurance, insurance companies are unable to claim ITC on commissions paid to distributors. This is resulting in a 5–7 per cent cost impact.

 

Companies are managing this by either absorbing the cost themselves or sharing it with distributors. The consensus across the industry is to avoid passing this burden to consumers, as health and life insurance are considered essential products, he said.

 

He added that operational challenges that emerged initially have largely been resolved, especially for insurers with integrated systems.

 

“Looking forward, the industry expects two key adjustments: reduction in distributor commissions and companies absorbing part of the cost. While the GST reduction has temporarily boosted demand, its effect is expected to be short lived. Long-term growth will depend on continued product innovation, simpler distribution, and stronger consumer communication,” he said.