GST cut puts insurance on par with food in fiscal policy, says Irdai chief

Irdai chief Ajay Seth urged insurers to target the bottom of the pyramid, where most of the growth potential lies, and to shift to a moderate-cost model delivering good quality service

The government’s latest fiscal stance with the Goods and Services Tax (GST) rate cut on health insurance has elevated insurance to the same priority level as essential goods like food, signalling a long-term policy commitment to deepen coverage and affordability, Insurance Regulatory and Development Authority of India (Irdai) Chairman Ajay Seth said on Thursday (October 30).

 

Speaking at Business Standard’s annual BFSI Summit in Mumbai, Seth said the government’s decision to reduce the GST on insurance products to zero places the sector “on par with food items” in policy significance.

 

“What the government has signalled for the insurance industry—look at the tax rates on insurance products: zero. Food items have zero and insurance is zero,” Seth said. “As a matter of its fiscal policy, the government is putting insurance as important as food.”

 

 

He called it a “huge opportunity” for the industry to expand coverage and improve affordability. “We are a high-cost sector. We should be following the maximum reach to the population, not just the top 10 per cent,” he said. “Unless customers see value, the sector won’t grow.”  READ BUSINESS STANDARD BFSI SUMMIT UPDATES LIVE

Focus on affordability and inclusion

 

Seth urged insurers to target the bottom of the pyramid, where most of the growth potential lies, and to shift from a high-cost to a moderate-cost model delivering good quality service. “There are several areas where we can economise costs. In life insurance, the cost is acquiring and managing the risk pool; in non-life, it is commissions to corporate agents,” he said.

 

He added that the industry currently enjoys maximum government support to make products more affordable and widely accessible.

Stability and distribution reforms

 

Responding to concerns about policy stability from the industry, Seth said maintaining the status quo would only preserve a “low equilibrium.”

 

“Health insurance is an unstable equilibrium currently, and life insurance has low savings. If you want to live with low-level equilibrium, we can stay with the status quo, but that is not the answer,” he said.

 

He highlighted distribution reforms as the next major priority, noting that both reach and affordability must improve. “Distribution and reachability are two important pillars. Most of the growth is now coming from tier-2 and tier-3 cities, but affordability has not yet entered the conversation,” he said.

 

While foreign investment is welcome, Seth said domestic capital remains critical. “Out of ₹3.5 trillion, FDI is only ₹80,000–90,000 crore,” he said. “One hundred per cent FDI alone cannot take care of the sector.”  ALSO READ | Awareness, risk management key to insurance growth: Leaders at BFSI Summit

Long-term capital and digital push

 

Seth said insurance investments in infrastructure remain small, with only 10 per cent of the total ₹75 trillion assets under management, though regulations permit up to 50 per cent in government securities. He called for coordination with the Reserve Bank of India (RBI) and Sebi to deepen India’s bond markets and enable insurers to deploy more long-term funds.

 

On digital transformation, Seth said the next frontier is creating a Digital Public Infrastructure (DPI) for insurance, led by platforms like Bima Sugam and the Insurance Information Bureau (IIB). “These two entities together will enhance efficiency and consumer access,” he said.

 

Seth said IRDAI’s next steps include consultations on risk-based capital and supervision, and encouraging more customised insurers to expand coverage. “More companies are needed, especially geographically focused ones,” he said. “Capital requirements are tricky, but as a regulator, we are ready for that.”