Multi-line Insurers See Muted Growth Post-GST Waiver on Health Policies
The article reports that multi-line general and health insurance companies have recorded subdued or muted growth following the government’s major GST rate rationalization, which included an exemption on individual life and health insurance premiums.
Reasons for Muted Growth
- Impact on New Business: While the GST waiver (which removed the 18% tax on individual health policies) was expected to boost demand by reducing premiums, the initial growth in new business has been less robust than anticipated.
- The Zero-Rating Conundrum: The key reason for the muted financial performance is likely the loss of Input Tax Credit (ITC) for insurers on their operational expenses (such as rent, commissions, and software) due to the health insurance products becoming ‘zero-rated’ (tax-exempt).
- Industry Shift in Focus: The entire insurance sector has been preoccupied with adjusting commission structures and managing the financial impact of the ITC loss, which has diverted focus from aggressive sales and rapid expansion efforts, leading to a temporary slowdown in overall premium growth.
- Distributor Backlash: The parallel move by some insurers to cut distributor commissions to offset the ITC loss (as reported in previous articles) may have also impacted the motivation and sales efforts of agents and distributors, contributing to the muted growth figures.
Source :- Business Standard