Will GST exemption on life cover reshape insurers’ margins?

The Federal spoke to Kedar Patki, Chief Financial Officer, IndiaFirst Life Insurance, on how the GST 2.0 announcements could reshape life insurance pricing, product mix, and industry operations.

He explained why the move can widen coverage, how input tax credits affect costs, and what consumers should realistically expect in premiums and claims.

What should consumers be happy about in the GST 2.0 announcements for insurance?

It is a very welcome move that aligns with the government’s vision of “insurance for all” by 2047. Exempting essential protection helps boost penetration across the country. Life insurance protects families, and making premiums more affordable brings policies within reach of more households. A simple way to see the difference: where ₹118 was paid earlier on a term premium with 18% GST, it now becomes ₹100 without GST. That change brings protection into the consideration set of many new customers.

Do headline penetration and density numbers reflect reality on the ground?

Penetration should be viewed in multiple ways: the number of lives covered and the quantum of cover. Government initiatives—on the lines of Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)—have expanded basic protection nationwide. With GST removed on key protection categories, coverage becomes more affordable and reachable, which should lift both the count of insured lives and the quality of cover.

With GST exemption, input tax credit (ITC) on costs like commissions, IT systems, and admin spends is blocked. Does that limit room to cut premiums?

There will be initial pressure on margins because ITC will not be available while those input services remain taxable. The impact varies by product line. Over time, customer preferences may shift, and volumes can help absorb some of the cost impact. As with past regulatory changes, the industry strives to pass maximum benefit to customers while adapting to the new cost structure.

Could the benefit be smaller than the full 18%—similar to banks not fully passing on repo rate cuts?

Today term products faced 18% GST, while other life products had different effective rates (such as 4.5% or 2.25%) depending on investment components. There will be margin pressure and some adjustments once the notification’s fine print is clear. Premiums could move in the medium term, but growth in business is expected to offset much of the ITC impact through higher volumes. Quantification will take time, and the industry will work to minimize any residual burden on customers.

Which products benefit most, and where is the effect muted?

Pure term life and health-style protection with minimal investment components benefit the most because a larger share of their premium was taxed earlier. Savings-oriented products like endowments already paid lower effective GST on the risk portion, so the net impact there is more muted—still positive, but smaller than for term.

Some insurers have very high claim settlement ratios while others are lower. With rising operating costs due to blocked ITC, could some players hold back benefits or tighten claims?

Claims are the moment of truth for customers, not a lever for cost control. As a company, the commitment is to pay 100% of genuine claims, and industry governance standards remain high. The regulator has strong grievance mechanisms, and the sector will not take the path of compromising claims to offset costs. The real response is to get leaner and more efficient, not to dilute claim outcomes.

Will the regulator step in on pricing or ask for repricing post-exemption?

All life products go to the regulator for approval, and the Insurance Regulatory and Development Authority of India (IRDAI) views pricing through the policyholder’s lens. Very marginal changes can be made by insurers, but beyond that, approvals are required. Oversight will continue for the right reasons.

Some in the industry preferred a reduced GST rate with ITC retention. Is full exemption manageable?

That preference has existed for some time. The current reality is exemption, and the industry will adapt as it has with previous changes—by recalibrating operations and product economics while keeping the customer’s interest central.

Will term plans—like ₹1 crore covers—see rising demand now?

A shift in preferences is likely, but it is early to quantify. Removing 18% GST from term improves affordability immediately, which should act as a trigger for more households to consider pure protection seriously.

Any implementation nuances consumers and insurers should watch for—renewals, existing policies, or timing?

The notification details matter. Questions include how renewals will be treated and what happens to policies issued before the change. Some customers might wait for clarity; others may compare old and new premiums. Insurers are discussing internally and will act in the customer’s best interest once the fine print is published.

Is GST compliance as complex for a large insurer as it is for MSMEs?

Insurers are large, multi-state filers with systems and processes to stay compliant across India. It is complex, but manageable. The regime has evolved since 2017, giving time to implement systems, and the administration has been patient through that evolution.

How do state finances intersect with insurance from a compliance standpoint?

Life insurers hold state-wise registrations and pay where policies are sold. States will assess their own revenue impact from the broader GST changes. For insurers, it is about compliance across states rather than the head-office jurisdiction.

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