GST cut lifts insurance demand, expands customer base, boosts coverage

Insurers and distributors have seen higher policy purchases and coverage levels since the GST exemption, though the initial surge in demand has moderated from a higher base

The removal of goods and services tax (GST) on individual health and life insurance has boosted demand and expanded the customer base for insurers, with a sharp increase in new policy purchases and higher coverage levels, although the initial surge following the tax cut has since moderated, according to insurers and distributors.

 

The GST Council exempted individual life and health insurance policies — including family floater and senior citizen policies, as well as their reinsurance — from GST effective September 22, 2025. This move aimed to make insurance more affordable and increase coverage.

 

Policybazaar, the largest online insurance distributor, had earlier reported a sharp increase in retail health, life and term insurance demand following the GST change. Term insurance purchases on its platform initially rose nearly 2.5 times, while health insurance demand increased 2.2 times.

 

 

“The sharp growth seen immediately after the announcement has now tapered, but the industry is growing from a higher base. There has also been around 20-25 per cent growth above projections, largely across both life and health over the first seven to eight months. So the growth is broad-based — it is both value growth and volume growth, with more lives being covered as well as higher average coverage,” said Amit Chhabra, chief business officer, Policybazaar.

 

The industry has also seen a 10-15 per cent increase in the average ticket size of life and health insurance policies, indicating that customers are opting for higher levels of coverage following the tax cut.

 

Life insurers, during their first-quarter results, reported stronger demand for term insurance policies with sums insured of more than Rs 2 crore. The share of term insurance in the overall product mix also increased during the period.

 

Health insurers, meanwhile, have seen greater demand for high-value policies, with sums insured ranging from Rs 20 lakh to over Rs 1 crore, as lower upfront costs have improved affordability amid rising medical expenses. Insurers are also seeing an increase in the number of first-time customers entering the health insurance market.

 

“The GST reduction had a significant positive impact on health insurance, particularly on retail health. At HDFC ERGO, our new health insurance business has almost doubled on a year-on-year basis during this period. We believe that not only are existing customers moving towards higher covers, but a new set of people are coming to buy health insurance policies, as the GST reduction has improved affordability,” said Parthanil Ghosh, MD & CEO, HDFC ERGO General Insurance.

 

“The percentage growth might moderate because of a higher base, particularly from October onwards, but the absolute business numbers should remain higher,” he added.

 

However, the removal of GST also came with the withdrawal of input tax credit (ITC), increasing the operating costs of insurers and putting pressure on margins. Insurers have absorbed part of the additional cost in their profit and loss accounts, while some of the impact has been passed on to distributors or offset through other measures.

 

“The key development is that the industry’s base has expanded, with a fresh set of people buying health insurance. The GST-related costs that insurers could not offset have already been absorbed into their P&L, which has had a negative impact. The bigger structural challenge for the sector, however, remains healthcare inflation, which the GST reduction does not address,” Ghosh said.

 

The impact has also been felt by insurance distributors, with lower commissions following the GST change, though higher volumes have helped offset the pressure, Chhabra said. “Overall, GST has been a dramatic positive for insurers, distributors and customers,” he said.