Health Insurers May Raise Premiums Despite GST Exemption

The government’s recent decision to fully exempt individual health and life insurance policies from GST was widely welcomed by customers and the industry alike. Finance Minister Nirmala Sitharaman announced that the exemption would apply to all individual life insurance products, including term life, endowment plans, and Unit Linked Insurance Plans, as well as to reinsurance. For health insurance, it covers individual policies, family floater plans, and senior citizen policies. The move was expected to reduce the cost of premiums and make insurance more accessible to households across the country.

However, a new report by Kotak Institutional Securities has suggested that insurers may still need to raise premiums modestly to recover the loss of input tax credit. Input tax credit is a mechanism that allowed insurance companies to claim credit on GST paid for services such as distribution commissions, promotions, and other operational expenses. With the GST exemption in place, this benefit is no longer available for many of these services, even though the companies will continue to incur those costs.

The report estimates that insurers may need to raise premiums by three to five percent to maintain margins. Despite this, customers are still likely to see an overall reduction of around twelve to fifteen percent in insurance prices compared with earlier, which could keep demand strong for both life and health policies.

Standalone health insurers are expected to feel the effect more immediately. Companies such as Star Health, Niva Bupa, and Care Health may face a need to increase tariffs by one to four percent. According to estimates, Star Health had paid over three thousand crore rupees in GST in the last financial year and had claimed nearly four hundred crore rupees as input tax credit. With this credit no longer available, the company may require a one to three percent adjustment in tariffs to remain margin neutral.

The pressure is expected to be greater on Niva Bupa, which could need to raise premiums by around four percent because of higher operating expenses and a larger share of reinsurance. Care Health, too, may require an increase of about two percent to absorb the change. For life insurance companies, the impact is less clear at this stage as the GST framework is more complex across different product categories and business lines. Analysts believe further clarity from insurers will be required to understand the full effect of the exemption.

The Kotak report also highlighted that tariff revisions may not happen immediately. Some insurers might delay changes, while customers could take advantage of the one month free look period to cancel or switch to policies that reflect the revised and lower rates. Multi line general insurance companies may face a slightly softer impact, as they can distribute the costs across multiple business areas beyond health and life.

While the exemption from GST is a clear positive for customers and is expected to improve affordability, the fine print shows that insurers must recalibrate their pricing structures. Balancing affordability for customers while ensuring financial sustainability for companies will be the key challenge in the coming months.

For policyholders, this means that even if premiums rise slightly, the net benefit of GST exemption should still make insurance cheaper than before. The bigger picture is that this reform can encourage more households to secure themselves with health and life cover, strengthening the penetration of insurance in India’s growing financial ecosystem.

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