In a significant development for the insurance sector, companies have begun offering GST-free premiums on health and life insurance plans, nearly two weeks before the official GST reform takes effect on September 22. This move comes as insurance CEOs meet with Finance Ministry officials to discuss key industry concerns, including the request for Input Tax Credit (ITC) benefits on renewal policies.

GST Reform Implementation

The upcoming reform reduces GST from 18% to 0% on health and life insurance products. Companies like Star Health and Allied Insurance and Policybazaar are allowing customers to purchase policies now without paying GST, with coverage beginning September 22. Customers pay only the base premium amount at the time of purchase.

Star Health CEO Anand Roy described the GST exemption as a landmark reform, emphasizing that health insurance is a necessity rather than an optional expense. The reduced premium prices are expected to encourage families to opt for higher sum insured amounts, supporting the government's vision of 'Insurance for All by 2047.'

Meeting with Finance Ministry

In a recent high-level meeting, insurance CEOs met with Finance Ministry officials to discuss several industry concerns:

• ITC Benefits Request: The primary focus was the request for Input Tax Credit benefits on renewal policies, which could potentially impact both insurers and policyholders.
• Government Acknowledgment: Finance Ministry officials acknowledged the demands put forward by the insurance industry leaders, indicating a willingness to consider the sector's concerns.

Potential Implications

The GST reform and the discussions on ITC benefits could have far-reaching effects:

1. Cost Reduction: The GST exemption and potential ITC benefits could lower costs for insurance companies, especially on policy renewals.
2. Consumer Impact: Improved affordability may encourage more families to opt for higher sum insured amounts and lead to more competitive pricing for policy renewals.
3. Industry Growth: Lower prices and potential ITC benefits could lead to higher retention rates and overall growth in the insurance sector.
4. Tax Structure: The GST reform and any potential ITC benefit implementation would require adjustments to the current tax structure for insurance products.

While households will benefit from improved affordability due to the GST exemption, insurers may face increased costs due to the loss of input tax credit. The insurance industry's proactive approach in engaging with the Finance Ministry demonstrates the sector's commitment to addressing key challenges and improving its operational environment.

As these developments unfold, stakeholders will be keenly watching for any further policy changes that may emerge from this high-level interaction and the implementation of the GST reform.

The insurance sector in India is gearing up for a significant push against recent Goods and Services Tax (GST) changes, with the Life Insurance Council and Life Insurance Corporation of India (LIC) taking the lead. These industry giants are planning to approach the Ministry of Finance and the Central Board of Indirect Taxes and Customs (CBIC) with a set of demands aimed at easing the impact of GST modifications on the sector.

Key Demands from the Insurance Sector

1. Prospective Implementation: The industry is requesting that the GST changes be applied prospectively rather than retrospectively, potentially alleviating immediate financial pressures.

2. Input Tax Credit on Renewals: A crucial demand is the ability to claim input tax credit on renewal premiums, which could significantly impact the cost structure of insurance products.

3. Commission Expense Exemption: Currently, only reinsurance costs are exempt from GST. The sector is pushing for commission expenses to also be exempted, given that these two components account for nearly 90% of total expenses.

Implications of Current GST Structure

The existing GST framework has created an inverted duty structure for the insurance industry. This situation leads to:

• Unclaimed credits
• Higher costs for insurers

Industry executives note that while a lower GST rate might seem beneficial, it may not necessarily boost insurance demand. This is because insurance is primarily a 'push product,' with sales driven by factors beyond just pricing.

Potential Impact Across the Insurance Landscape

Analysts foresee various effects on different segments of the insurance market:

Next Steps

The Life Insurance Council is planning to engage with the Insurance Regulatory and Development Authority of India (IRDAI) chairman to garner support before approaching the government. This strategic move underscores the industry's commitment to presenting a united front in its quest for regulatory relief.

As the situation unfolds, stakeholders across the insurance sector will be closely watching the government's response to these demands, which could have far-reaching implications for both insurers and policyholders alike.