GST waiver alone not enough to deepen penetration, say insurers - Business Standard

The recent goods and services tax (GST) reforms are a landmark step towards making insurance more affordable and inclusive in India. The exemptions will help reduce insurance premiums, enhance affordability, and signal the government’s strong focus on insurance as an essential life necessity, the chiefs of four life insurance companies said at the Business Standard BFSI Insight Summit 2025.

In a session moderated by Manojit Saha of Business Standard, Ratnakar Patnaik, managing director (MD) of Life Insurance Corporation of India (LIC), said: “I agree this (GST exemption) will help insurance grow, it will become affordable. But at the same time, GST waiver alone will not help to increase penetration as such. It will surely facilitate it, but by itself is not sufficient to increase the penetration levels.” 

In early September, the GST Council announced a tax exemption on all individual life and health insurance policies, and their reinsurance was also exempted to boost penetration. 

“It will surely help to bring down prices and increase penetration. Insurance is not a product which people will stand up tomorrow and buy. I would say for some time in September, it did happen. For a few days it did happen. That is a good indicator. But we will have to keep this alive in the mind of the customer, ensure that we take it to every household, let them know the benefits of bringing the prices down and increasing the sum insured,” said Tarun Chugh, MD & CEO, Bajaj Life Insurance.

The insurers said that along with the GST waiver, they would need to educate people and inform them about improved affordability. Before the waiver, GST was a significant part of the cost, mainly for protection plans. There was a need to tell people about the enhanced affordability after the GST relief. Further, to increase penetration, there was a need for product innovation, more cross selling opportunities, and changes in distribution.

Insurers also believe that GST cuts have provided a great opportunity to boost the sale of protection products while also providing other value added services.

According to Mahesh Balasubramanian, MD & CEO, Kotak Life Insurance, “As regards converting from a push product to a pull product, in every financial services business, there has been one lead product, which is the customer acquisition engine. I think this is the moment for term insurance. We can use this opportunity to seize the moment and make term insurance as the feeder product, where all of us acquire customers, and then see whether we can cross-sell and up-sell.”

Anup Bagchi, MD & CEO, ICICI Prudential Life Insurance, said: “The excitement and this kind of positive discussion on life insurance with this kind of intensity is happening for the first time. The intensity has come because affordability has improved and it is a massive change...In channels which are not intermediated, which are online, where customers come in, all of us, we are certainly seeing 30-50 per cent increased traffic.”

Further, while the insurers deliberated on the opportunities created by the GST waiver, they discussed several measures that have been taken to counter the impact of removal of the input tax credit (ITC). According to the companies, even as the benefits must be passed on to customers, manufacturers, distributors and vendors must bear the impact of the loss equally.

While some of the insurers are in discussions with their distributors on the same, LIC has passed the benefits to customers without making any changes in commissions.

“The government is sharing much of the burden as well, and so is the sector. There are basically four stakeholders. The prime and the most important is the customer, there is a manufacturer - which is the sector, then there is a distributor and the vendors are the fourth. The vendors provide a lot of services like the staffing units. The sector has shown and acted in unison: that we will not pass on anything negative to the customer. We have absorbed it. But eventually, it will have to be the three other stakeholders who will have to take on. The distributor also has to handle it and discussions are going on,” Chugh said.

“Our priority continues to be the customer and we have passed on the entire benefit to the customer. That has been the approach even today. Secondly, as far as the GST on the commission is concerned, that also the corporation has absorbed. LIC has nearly 15,00,000 agents and many of them depend solely on income generated from life insurance,” Patnaik said.

“We have to pass on the benefits to the customer, which all of us are committed to and already done. So, I think the productivity and efficiency of the industry has to go up. We have to look at all our costs and hope that ‘less is more’ should be the philosophy. So, we will probably take some time to reorganise. I don’t think this can change overnight. It can probably be a 6-12 month process where we look at each of the items and see how we can optimise,” Balasubramanian said.

“Growth of the industry is the only thing which mitigates all of this. If there is no growth in the industry, GST, no GST, nothing can get absorbed. So, the first thing we have to focus on is how do you give more to the customer. Chota premium, bada cover, turrant issuance, instant settlement. We must also understand that much of our distribution caters to the slightly more affluent part of the population. While, in other industries, growth is coming from alternate distribution. You will see in mutual funds, you know, the online distributors, they have certainly grown very large,” Bagchi said.