GST Rationalisation impact: Share of high-value health policies doubles

Zero GST on retail health insurance boosts affordability, driving a sharp shift toward high-value policies as rising medical costs push demand for larger coverage

Share of high-value health insurance policies, with sum insured from ₹20 lakh to over ₹1 crore, has more than doubled in the last eight months since the central government rationalised goods and services tax (GST) rates from 18 per cent to zero per cent for individual policies. According to industry experts, the GST rationalisation has increased affordability for customers amid elevated medical costs. 

According to Policybazaar data, the share of  health insurance policies worth ₹20 lakh to ₹1 crore has risen from 11 per cent before the GST changes to 16 per cent currently, while share of policies worth ₹1 crore and above has increased from 2 per cent to nearly 12 per cent. The share of both put together has increased from nearly 13 per cent to 28 per cent.

“The reduction in GST has pushed customers toward higher-coverage plans. Demand for higher-coverage plans has nearly doubled. There is also a rapid adoption of unlimited sum insured plans,” said Siddharth Singhal, business head of health insurance, Policybazaar. 

The demand for health insurance policies increased after the government in September reduced GST rates for retail health insurance policies from 18 per cent to nil. 

“People need health insurance with higher sum insured. With GST reduction, they are looking at higher sum insured because they feel that they can afford it. There is always a need for people to go for higher coverage as there is 12-14 per cent medical inflation. So, the value of health insurance keeps reducing by 12-14 per cent on a yearly basis. Still, one of the most popular health insurance brackets is around ₹10 lakh for people to buy. But, we see that people are trying to go to the next layer and look for higher sum insured coverages,” said, G Srinivasan, managing director and chief executive officer (CEO) of Galaxy Health Insurance. 

Policybazaar’s data suggested that demand for policies worth ₹10 lakh and less than ₹20 lakh has remained stagnant with the share rising only marginally from 61 per cent to 62 per cent. At the same time, share of health insurance policies for less than ₹10 lakh dropped to 10 per cent post-GST rationalisation, compared to 26 per cent which existed before that. 

“Companies are not able to offer high-value coverage, except in case of select organisations and that too mainly for management level. It could also be one of the reasons driving people to buy higher-sum insurance covers,” said Narendra Bharindwal, president, Insurance Brokers Association of India.