Experts argue in favour of removal of 18% GST on Health covers to boost insurance penetration

“If GST is removed, a straight 18% less in amount will keep people from choosing higher sum-insured or better policy coverages in the same amount”

Rakesh Jain, CEO, Reliance General Insurance

Premiums have always been a key deciding factor for policyholders. The imposition of 18% GST on insurance premiums, however, acts as a significant deterrent to insurance purchase and penetration. The added tax liability is an obstacle for some, especially if they are already watching their budget closely.

If GST were removed, it could encourage more people to invest in insurance, potentially boosting the growth in insurance penetration and creating a more financially secure nation.

Removal of GST will increase considerations and insurance affordability for more people, making it easier for everyone to get covered and feel secure about their future.

How much should the GST be?

The removal of GST will not only aid the penetration of new insurance policies and upgrade existing policyholders. For a population that today finds insurance non-negotiable, it has restricted or underinsured due to its present liability.

If GST is removed, a straight 18% less in amount will keep people from choosing higher sum-insured or better policy coverages in the same amount.

Lower costs inspire insurers to create new and innovative products better tailored to the diverse needs of customers, making the industry more dynamic and responsive.

Will it help Indian insurance market growth?

Lets take for instance, consider a health insurance policy with a sum insured of Rs. 5 lakhs for a family of four, with the highest insured member being 30 years old. The actuarial premium for this policy might be Rs. 6,000.

However, after applying the 18% GST, the final cost to the customer rises to Rs. 7,200. This additional Rs. 1,200 can be a decisive factor, potentially leading to 2 outcomes: either the customer is willing to choose to go for a lower coverage to fit the pocket that will lead to underinsured/inadequate coverage or deterring customers from purchasing the policy, keeping them and their families vulnerable for future health emergencies.

This highlights the potential impact of GST on health insurance costs, making it crucial for consumers to be more informed and cautious about their insurance decisions. We understand that the removal of GST will come with its own set of challenges.

There will be operational adjustments, like updating systems and processes that currently include GST considerations.

Additionally, this change could affect tax credits and alter market dynamics. While these changes could benefit policyholders and support economic goals, we are committed to navigating these logistical hurdles carefully to ensure a smooth transition.

“Reducing GST on health insurance is a strategic move that can significantly increase insurance penetration in India”

Shashi Kant Dahuja, Executive Director and Chief Underwriting Officer, Shriram General Insurance

Why it should happen ?

Healthcare is one of the largest sectors of the Indian Economy and health insurance contributes significantly by providing help in providing coverage for the medical services.

As per reports approx. 50 crore people across India are covered under Ayushman Bharat Yojana which still covers only approx. 37% of the people in the country. Reducing taxes on health insurance can lower the cost of premiums, making health insurance more affordable for a larger segment of the population.

This increased affordability can encourage more people to purchase insurance, thereby reducing the number of uninsured individuals.

Even those who already have some form of insurance may be encouraged to increase their coverage or opt for additional riders, improving their overall protection.

 How much in should be ?

Lowering Goods and Services Tax (GST) rates on health insurance can indeed encourage more people to opt for insurance. Even a small reduction in GST about 4 % from the current 18% can make a significant difference in premium costs,especially for those on tight budgets. This increased affordability can lead to higher insurance penetration, particularly among middle- and lower-income groups.

Will it help insurance to grow ?

Reducing GST on health insurance is a strategic move that can significantly increase insurance penetration in India. By making health insurance more affordable and accessible, particularly for low- and middle-income groups and rural populations, the country can move closer to achieving broader healthcare coverage and financial protection for its citizens.

This not only aligns with public health goals but also supports the overall growth and development of the insurance industry in India.

Many Indians, especially those without prior experience with insurance, may view the current cost as prohibitive. Lower GST rates can reduce this financial barrier, encouraging first-time buyers to invest in health insurance.