MUMBAI: The reduction in health insurance premiums is unlikely to match the 18% GST cut as insurers are expected to pass some of the costs arising from input taxes to customers.
While health insurance has seen the biggest drop in GST — from 18% to zero — the loss of input tax credit means insurers may either pass on some of the costs to customers and distributors or absorb them as lower margins. According to the CEO of an insurance company, the cost of health insurance is likely to fall by around 11% if insurers account for the loss of input tax credit. “Those who were paying Rs 118 will end up paying around Rs 107,” he said.
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For the life insurance industry, the waiver of GST on plans with a savings component has come as a surprise, as many had expected it would apply only to pure life insurance, or term policies. For life insurance companies, costs would increase for insurers because of the unrecovered tax on inputs, said the CEO of a life insurance company. “For at-par policies, if the costs are not passed on, it might impact the bonuses,” he said. For non-life companies, the biggest boost is likely to come from higher automobile sales, as nearly 40% of their premiums come from motor insurance.
“We are closely analysing the implications concerning the input tax credit. While it is anticipated that there will be lowering of the premiums due to lowering of the taxes, we are yet to understand the extent of this reduction as this will also depend upon availability of the input tax credit, which will become clearer over the coming days,” said Samir Shah, executive director and CFO, HDFC Ergo General Insurance.
The GST waiver may also make individual policies cheaper than group covers, which will continue to be taxed at 18%. Buyers of some group covers may find it more economical to shift members to individual policies.
“To ensure that the full intent of this policy is realised for customers, clarity on the treatment of insurers’ input tax credits and transitional arrangements will be essential. ACKO remains committed to working constructively with govt and industry peers to enable a smooth and transparent implementation,” said Animesh Das, MD & CEO of ACKO General Insurance