As Union Budget 2026 approaches, insurance industry experts across health, life, and general insurance segments are calling for targeted fiscal and structural reforms to improve affordability, expand penetration, and strengthen India's insurance ecosystem in line with the Insurance for All by 2047 vision.

Medical Inflation Drives Reform Demands

Medical inflation remains a central concern for the health insurance segment. Srikanth Kandikonda, Chief Financial Officer at ManipalCigna Health Insurance, highlighted that medical inflation in India is projected at 11.5%–14%, among the highest in Asia, placing sustained pressure on household finances. While measures such as GST removal on insurance premiums and 100% FDI allowance have helped affordability, rising healthcare costs continue to challenge coverage adequacy.

Kandikonda emphasized that higher public health spending, stronger primary care networks, and enhanced focus on prevention could reduce long-term treatment costs. He also called for enhanced tax benefits for OPD services and preventive health screenings beyond existing Section 80D limits.

Section 80D Revision Proposals

Multiple industry experts are advocating for substantial increases in tax deduction limits to reflect current healthcare realities:

Rajendra Upadhyaya, Chief Growth Officer at Choice Insurance Broking, noted that current Section 80D limits no longer reflect double-digit medical inflation reality, as a ₹10 lakh family health cover often exceeds current deduction limits. Shikha Bhatia, Associate Professor of Finance and Accounting at IMI Delhi, supported similar upward revisions to better align with rising healthcare costs.

GST and Input Tax Credit Challenges

Narendra Bharindwal, President of Insurance Brokers Association of India (IBAI), highlighted structural tax issues within the insurance value chain. While GST exemption on retail health and life insurance has improved affordability, insurers cannot claim input tax credit on exempt products. GST paid on distribution, servicing, and technology costs gets embedded into premiums, limiting investment in deeper penetration and digital infrastructure.

Bharindwal suggested allowing input tax credit or implementing a calibrated offset mechanism, along with stronger public-private partnerships for health, MSME, climate, and catastrophe risks.

Investment and Infrastructure Focus

From a macro-fiscal perspective, Ajit Banerjee, President and Chief Investment Officer at Shriram Life Insurance Company, indicated the government is likely to continue balancing fiscal prudence with growth priorities. While central government capex may face limits, higher allocations could be seen for:

• Defence and railways
• Shipbuilding and alternate energy
• Education initiatives
• Coordinated health programs under National Health Mission

Banerjee stressed the need to raise insurance tax deductions, either by increasing Section 80C limits or creating separate sections for insurance premiums to improve penetration.

Digital Infrastructure and Distribution Reforms

Sharad Mathur, Managing Director and CEO at Universal Sompo General Insurance, emphasized that achieving Insurance for All by 2047 requires a time-bound roadmap supported by shared digital insurance infrastructure and cost-efficient distribution frameworks. He advocated for sustained funding for insurance literacy, particularly in rural and low-income regions, and greater private sector participation in government schemes.

Hanut Mehta, CEO and Co-Founder of BimaPay Finsure, noted that Budget 2026 could be an inflection point if policy signals support deeper insurance coverage, improved credit access, and clearer digital lending norms. Better data-sharing, simplified KYC, and tax clarity could make premium financing mainstream, enabling customers to opt for adequate coverage without liquidity stress.

Sector-Specific Recommendations

Subrata Mondal, Managing Director and CEO at IFFCO-TOKIO General Insurance Company, acknowledged that recent GST rationalization on health insurance has provided policyholder relief and could improve penetration. He called for higher allocations to crop and climate risk insurance, expanded PMFBY coverage, and creation of disaster and catastrophe insurance pools to improve resilience amid increasing climate volatility.

Alok Rungta, Managing Director and CEO at Generali Central Life Insurance, emphasized that limits on tax concessions for life insurance and retirement products need revision to reflect rising incomes and evolving life-stage needs. Simplifying taxation, encouraging pure protection plans, and incentivizing long-term savings could improve affordability and participation.

The government's move to exempt Goods and Services Tax on individual life insurance premiums is creating a complex scenario for insurers, offering demand benefits while introducing profitability challenges. According to Nuvama Research, this policy change represents a structural positive for demand growth but brings near-term margin pressures that will test insurers' operational efficiency and strategic positioning.

Demand Growth Drivers

The GST exemption directly reduces the upfront premium burden for customers, making life insurance products more attractive to price-sensitive buyers. This cost reduction is expected to improve affordability and lift penetration rates, particularly benefiting protection and traditional savings products. The policy change comes at a time when the sector is already experiencing robust momentum.

Analysts expect the lower premium costs to support new business volumes and sustain long-term growth across the industry. Over time, higher volumes could provide operating leverage, helping insurers absorb part of the cost pressure, though this benefit is unlikely to materialize immediately.

Margin Pressure Challenges

The removal of input tax credit presents immediate challenges for insurers' profitability metrics. Companies will no longer be able to offset GST paid on key expenses including:

• Distribution commissions
• Technology infrastructure costs
• Servicing expenses

This change is expected to increase expense ratios, particularly affecting insurers with agency-heavy distribution models or higher commission structures. Companies may attempt to mitigate the impact through product repricing, commission rationalization, or efficiency measures, but analysts anticipate near-term pressure on value of new business margins.

Company Positioning Analysis

Channel mix and operational efficiency are emerging as critical differentiators in how well insurers can navigate this transition. The analysis reveals varying levels of preparedness among major players.

SBI Life Insurance is viewed as the best positioned to weather the changes, benefiting from its strong cost discipline and dominant bancassurance franchise. The company's scale advantage and continued market share gains are expected to cushion the impact of higher operating costs.

HDFC Life Insurance also appears well-equipped for the transition, supported by its diversified product mix and meaningful presence in linked and protection businesses. The company's digital efficiencies and pricing flexibility provide additional buffers against margin pressure.

Investment Implications

Nuvama Research has maintained 'Buy' ratings on both SBI Life and HDFC Life while continuing to recommend Axis Max Life as a growth play, despite its higher margin sensitivity. For Life Insurance Corporation, the traditional-heavy product mix could limit flexibility in repricing and margin management in the near term.

The GST exemption creates a two-phase impact scenario for investors. Short-term expectations include margin compression and volatility in value of new business metrics as insurers adjust to the loss of input tax credit. However, the medium-term outlook appears more favorable, with stronger demand, rising penetration rates, and scale benefits expected to help normalize profitability levels across the sector.