The Case for Reducing GST to Achieve Universal Insurance Coverage in India

The Indian insurance industry has witnessed spectacular developments over the last few years. With an impressive growth rate of 7.1% between 2024-2028, the industry is predicted to be among the fastest-growing G20 countries. 

Given the criticality of comprehensive life and health insurance coverage in enabling a productive and healthy workforce, it is only natural that there is a lot of debate around ways in which this can be achieved. Among the most debated themes around the subject is the reduction or complete exemption of life and health insurance from GST or any other kind of taxation. 

Insurance industry stakeholders have long advocated for a significant reduction in the Goods and Services Tax (GST) on health and life insurance, arguing that such a change is essential for promoting inclusive economic development and ensuring broader access to essential coverage in our economy. This measure could help mitigate the annual rise in premiums caused by medical inflation and other macroeconomic factors, offering a more affordable path to quality insurance coverage. Furthermore, given that a large portion of the population is inadequately prepared for retirement, easing taxation on life insurance products which include retirement and annuity plans, will drive up life insurance reach and penetration.

Making Access to Quality Universal Insurance a Commonplace 

India is already taking definitive action towards making “Insurance for All” a reality by 2047. The Insurance Regulatory Development Authority of India (IRDAI) has followed up this ambitious announcement with decisive steps such as reducing the waiting period for pre-existing diseases and directing players to create insurance policies aimed at all demographic segments, including senior citizens, among others. Similarly, they have directed insurance players to enhance awareness, prioritising claim settlement, etc. 

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At the same time, it is also true that we have a long way to go when it comes to making quality insurance commonplace since the penetration of insurance, in general, is just 4% at present – of this, life insurance holds a majority share (about 3%). In contrast, general insurance, which includes health insurance, has a mere 1% penetration.  

A NITI Aayog report found that while 70% of the country’s population was covered either by social healthcare programs or private voluntary health insurance, there was a significant 30% that was devoid of any kind of health insurance.  It is also worth undertaking a nationwide study to understand if insurance coverage, be it life or health, is sufficient for most of the population. Given growing medical inflation, the country’s increasing disease burden, and a growing number of citizens being in the productive age group, it is imperative that they have adequate insurance coverage. 

All Stakeholders Have a Significant Role to Play

It will be important to recognize that given the magnitude of the challenge and the scale at which we are looking to implement universal insurance coverage, the government alone cannot take on this responsibility. 

They have effectively shaped a conducive environment by introducing visionary policies and programs; this critical role should be maintained and strengthened. Key measures include reducing GST, introducing additional income tax exemptions for health and life insurance, mandating health insurance for companies beyond a certain size and incentivizing them to provide adequate coverage by allowing employee insurance under corporate social responsibility (CSR). Paving the way for strong public-private partnerships in health insurance as with evolved universal healthcare systems in developed countries, will be another critical step. 

Insurance companies too, will need to step up their game with innovative offerings; comprehensive products that cater to all demographics, micro insurance products as well as insurance products that address the needs of the currently uninsured. 

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Corporate India also has a large role in setting the standards for adopting quality health insurance products. A considerable proportion of the country’s population will be employed for at least one-third of their lives with organizations contributing to its growth. It is their moral and social responsibility to ensure these citizens stay healthy. 

The recent deliberations around the reduction/removal of GST on health and life insurance signify healthy dialogue among key stakeholders. We need many such discussions and two-way conversations as we progress toward achieving quality universal insurance coverage for the world’s most populous country. 

Views expressed by Sumit Bohra, President – Insurance Brokers Association of India