The government’s recent decision to eliminate GST on health and life insurance premiums as part of the GST 2.0 initiative aimed to enhance affordability for insurance consumers. Concerns have arisen regarding the actual impact on consumers. In a new development, the GST reform in the insurance sector has stirred controversy among industry agents, posing challenges for the insurance distribution network.
Prashant Mhatre, the All India President of the General Insurance Agents Federation Integrated (GIAFI), has raised alarms over the decision, expressing concerns about the potential weakening of the crucial role played by agents, brokers, and advisors in expanding insurance coverage across India.
According to Mhatre, the exemption has resulted in an immediate loss of Input Tax Credit (ITC) for distributors, affecting their ability to offset taxes on commissions and other business expenses as previously allowed. This change significantly impacts the working capital of agencies, brokerages, and individual advisors, especially for small and independent operators who may struggle to maintain viability.
Another issue highlighted by GIAFI is that distributors now have to bear the burden of paying GST from their commissions, leading to reduced payouts by approximately 18% in some cases. This shift places a financial strain on distributors, impacting their earnings and inhibiting business growth.
Furthermore, the agents’ body has cautioned that the decision could hinder insurance penetration in smaller towns and rural areas, as agents and advisors play a vital role in educating customers and building trust, particularly in tier 2 and tier 3 cities. Mhatre emphasized the importance of unity within the insurance distribution community to address the challenges posed by the policy change and its potential implications for the broader insurance sector.
There are concerns within the industry that continuing the GST exemption in its current form may set a precedent for insurers to prioritize cutting distribution costs over improving efficiency to manage profitability. GIAFI advocates for a balanced approach that benefits consumers through lower GST rates while safeguarding the distribution network’s integrity, crucial for extending insurance coverage nationwide.
The ongoing debate necessitates collaboration between insurers and regulators to find a solution that protects distributors while ensuring policyholders’ affordability. The call for unity and collective action within the insurance distribution sector underscores the critical role of agents, federations, and associations in advocating for a sustainable and equitable insurance landscape.