Policy Size Surges
Following a recent adjustment in Goods and Services Tax (GST) rates for retail health insurance, the average sum assured for new policies has seen a remarkable
surge. Previously hovering around ₹9 lakh, the typical policy size has now climbed to approximately ₹11 lakh, marking a substantial increase of about 20-25%. This upward trend indicates that many individuals are leveraging the reduced premium outgo to secure more comprehensive health coverage. For instance, if a customer was previously paying around ₹20,000 in premiums, the GST reduction has lowered this to roughly ₹17,000-₹18,000. Encouragingly, a significant portion of these customers are choosing to allocate this saved amount towards enhancing their coverage limits rather than simply reducing their expenditure.
GST Exemption Impact
The government's decision to exempt GST on retail health insurance, encompassing individual policies, family floaters, and senior citizen plans, along with reinsurance costs, has proven to be a catalyst for industry growth. This exemption, implemented on September 22, has directly translated into a noticeable acceleration in premium collections. The standalone health insurance sector has reported robust year-on-year growth in monthly premiums, ranging between 36% and 39% from October to December 2025. Further solidifying this positive momentum, the industry experienced a significant 24% rise in premiums during January, reaching ₹4,528 crore. The demand from new customers purchasing policies has seen an impressive surge, with estimates suggesting an increase of nearly 50% across the industry, underscoring the heightened consumer interest in health insurance.
Navigating ITC Loss
While the GST rate cut has brought significant benefits, the insurance industry also faces challenges, notably the loss of input tax credit (ITC). Companies have proactively engaged with their distribution partners to address this impact by incorporating it into distribution margins. However, non-distribution related ITC expenses, such as those incurred on IT infrastructure and outsourcing services, must now be absorbed by the companies themselves. This presents a direct cost to insurers, although specific figures for the impact of ITC loss and the adjustments made to distributor margins have not been disclosed. For context, the company in question boasts a substantial agency distribution network, with approximately 8.5 lakh active agents, second only to the Life Insurance Corporation of India. Despite concerns regarding high distribution costs often raised by regulators, the company affirms that its operational expenses align with the guidelines set by the insurance regulator.
