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.

In a significant move affecting the insurance sector, the GST Council has announced the exemption of individual life and health insurance policies from Goods and Services Tax (GST). This decision, while beneficial for consumers, presents a complex scenario for insurance companies.

Impact on Consumers

The exemption is set to make insurance policies more affordable for the average consumer. Previously, health insurance and life insurance Unit Linked Insurance Plan (ULIP) policies carried an 18% GST, while endowment policies had rates ranging from 1.8% to 4.5%. With the new exemption in place, policyholders could potentially see their premiums reduced by approximately 15%, provided the benefits are passed on by the insurers.

Challenges for Insurers

While the move is consumer-friendly, it poses certain challenges for insurance companies:

1. Loss of Input Tax Credit: Insurers will no longer be eligible for Input Tax Credit on operational expenses such as commissions and claims processing.
2. Increased Costs: This loss of tax credit is expected to increase costs for insurance companies by 5-7% per policy.
3. Reinsurance Costs: The exemption also extends to reinsurance costs, which could impact the overall financial structure of insurance operations.

Market Performance of Insurance Stocks

The news has had varying impacts on insurance company stocks:

HDFC Life has shown strong performance, gaining over 5% in the past month and 25-30% year-to-date. SBI Life, despite a slight monthly decline of 1%, has also seen significant year-to-date gains of 25-30%. ICICI Prudential, however, has experienced a 7.5% decline year-to-date. Niva Bupa, a relatively new entrant to the market, is currently trading close to its IPO price of ₹74.

Industry Outlook

The GST exemption on individual insurance policies represents a significant shift in the insurance landscape. While it aims to make insurance more accessible to consumers, it also introduces new financial considerations for insurance providers. Companies will need to navigate the balance between potential increased demand due to lower policy costs and the challenge of managing higher operational expenses.

As the industry adapts to these changes, it will be crucial to monitor how insurance companies adjust their strategies to maintain profitability while potentially seeing an uptick in policy subscriptions. The varied stock performances of major players in the sector reflect the market's mixed reaction to these developments, highlighting the complexity of the situation and the need for careful analysis in the coming months.