The reduction in goods & services tax (GST) on individual life and health insurance premiums has been called a “landmark step” for making insurance affordable and inclusive.
In a panel discussion at the Business Standard BFSI Insight Summit 2025, Anup Bagchi, managing director (MD) & chief executive officer (CEO) of ICICI Prudential Life Insurance; Mahesh Balasubramanian, MD & CEO of Kotak Life Insurance; Tarun Chugh, MD & CEO of Bajaj Life Insurance; and Ratnakar Patnaik, MD of Life Insurance Corporation of India (LIC), listed what else the industry needs to reach more people.
Will GST rationalisation lead to better penetration?
Patnaik: I agree it will help insurance grow; insurance will become affordable surely.
But at the same time, GST waiver alone will not help in the increase of penetration as such.
It will surely facilitate but it itself is not sufficient to increase the penetration levels.
We must take care of the protection gap which will further lead to improvement in penetration.
Chugh: It will surely help — when prices come down, products become more affordable.
It will help to bring down the price and bring up penetration, but insurance is not a product which people will stand up tomorrow and buy.
For some time in September it did happen — there was a milestone date of September 22 — and that was a good indicator.
But we will have to keep this alive in the mind of the customer, take it to every household, and let them know the benefits of lower prices and higher sum assured.
We will have to educate people that it’s a lot more affordable now.
GST was a significant part, particularly for term plans, and we’ll have to propagate that more and more.
Balasubramanian: Making life insurance GST-exempt sends a strong signal of the government’s commitment to the sector.
Insurance has long been misunderstood as a discretionary or lifestyle purchase, when it is actually a basic necessity.
Life insurance is fundamentally about preserving a family’s lifestyle in the absence of the breadwinner.
By making GST zero, the government has reinforced its essential nature.
This moment should be treated as an inflexion point.
We must use it to shift insurance from a push product to more of a pull product. In every financial sector, there's a lead customer-acquisition product: CASA for banks, SIPs for mutual funds.
For us, it must be term insurance. To make term plans truly accessible, we need to solve underwriting and fraud-related challenges so that issuance can become a simple two- or three-click experience.
Term insurance is a highly leveraged product (e.g., a Rs 2,500 premium offering Rs 10 lakh cover), so risk management is critical.
With GST on term insurance previously at 18 per cent (compared to 4.5 per cent on other products and 2.25 per cent on renewals), this exemption is a major opportunity to make term insurance the industry’s customer-acquisition engine.
Once acquired, customers can then be offered additional products — as banks, mutual funds, and brokers have done.
This is a pivotal reform in the history of life insurance in India, and the industry must fully capitalize on it.
Bagchi: India has a population of around 1.4 billion and it has around 350 million families, yet there would be over 200 million unique insurance policies in India.
While we may be underpenetrated in terms of premium depth, we are not significantly underpenetrated from a distribution perspective.
The recent GST reform is a landmark move and has generated unprecedented positivity around life insurance because affordability has improved significantly—an 18 per cent reduction is substantial.
Schemes like PMJJBY [Pradhan Mantri Jeevan Jyoti Bima Yojana] already cover tens of crores but GST alone cannot solve penetration challenges.
We must also make distribution more affordable and design products suited to India’s lower per-capita income. International penetration differences largely reflect income levels rather than industry shortcomings.
Life insurance is a highly leveraged product — often 1:400, as seen in PMJJBY — so improving risk assessment, reducing early claims, and controlling fraud are essential to improving affordability and simplifying processes.
Customers in protection products consistently want four things: low premium, high cover, instant issuance, and quick settlement.
The industry is already strong on claims, with settlement ratios above 99 per cent.
The focus now should be on affordability, and early trends are encouraging. Online, non-intermediated channels are seeing a 30–50 per cent rise in traffic, indicating a clear price effect from the GST change, though different channels are responding in different ways.
How important is innovation and customer awareness in distribution to increase penetration?
Patnaik: Awareness is critical in the insurance sector, especially in rural India, where protection gaps remain significant. Last year, the average death claim settled per policy was under Rs 3 lakh, highlighting the urgent need to improve coverage.
Many agents, particularly in rural areas, are still not well-versed in term insurance, although newer millennial agents are more aware.
With the recent GST exemption, customers now receive an additional 18–20 per cent coverage for the same premium.
It is vital that field forces educate customers about these benefits to bridge the protection gap.
Intensive training programs for agents and distributors are essential, particularly in rural areas where over 75 per cent of business and agents operate.
Strengthening awareness and capacity among intermediary supervisory cadres between agents and the organisation is equally important.
The current period, following GST exemption, presents a unique opportunity to enhance awareness and promote term insurance actively.
The GST reform also positively impacts annuities.
Previously, on a Rs 10 lakh premium, a customer paid Rs 18,000 as GST.
With GST removed, the annuity payout increases significantly, offering better returns and enhancing the value of these products.
Overall, this is a crucial moment for the insurance industry to focus on awareness, training, and education, ensuring that both agents and customers understand the enhanced benefits.
Do you think the GST cut presents an opportunity for the industry to pivot to protection-oriented offerings?
Chugh: The industry has already started moving in that direction — it depends on how big you want the pivot to be.
India’s median age is 29; families are forming later, so the demand for insurance often comes later too.
We need awareness and innovation — insurance is not an easy product to understand globally.
It still requires personal interaction.
The biggest impact has been on the price, but people will not get up tomorrow and start seeing the need for it.
Per capita income still plays a role. For many, savings are the priority.
The challenge is to make people value death benefits more — that’s when term insurance will really grow.
Balasubramanian: Protection is essential but to make it more meaningful for customers we must package it with value-added services and wellness benefits.
If customers experience ongoing and year-round engagement through health and wellness platforms, the conversation shifts from life insurance being only a death benefit to offering real-living benefits.
We already have a wellness platform in the Kotak group and embedding such services in products can significantly increase customer interaction and interest, especially in a world driven by instant gratification and where long-term policies are harder to sell.
By integrating wellness tools, health apps and even elder-care services for senior customers within pension or annuity products, we can enrich the customer experience, improve engagement, and make protection products more relevant and appealing.
Do you agree on the importance of value-added products?
Bagchi: I agree that insurance is not a high-frequency product — customers rarely engage repeatedly.
Without engagement, it’s difficult to retain them.
Wellness initiatives or other high-touch services can increase interaction, improve retention and create opportunities for upselling by keeping customers aware of policy benefits over time.
Insurance offerings can be divided into three main buckets: Protection, annuities, and savings.
In protection, low per capita income drives borrowing, so credit protection is vital.
Secured loans should be insured to safeguard collateral and families in case of unforeseen events.
Beyond individual protection, credit protection addresses a critical need in a low-income country like India.
Annuities offer life or joint-life guarantees and nomination benefits, a feature not provided by other financial products.
These compete with fixed-income options like FDs and government schemes.
While social security coverage exists for many government employees, others may still benefit from annuities.
Savings products compete with growth-oriented investments.
A balance of guaranteed returns and growth potential is essential: Guaranteed products provide stability, while growth products create customer pull.
Understanding customer demographics and needs is crucial for product design and distribution.
Many advisors serve older, affluent clients, but broader reach requires distribution models that target larger volumes with lower margins.
Innovation in products and distribution is necessary.
Using the law of large numbers, as demonstrated by PMJJBY, reduces anti-selection risks and enables large-scale, sustainable protection.
Affordability measures such as GST reductions help but are not sufficient. Continuous innovation, customer engagement, risk management, and distribution expansion are essential to achieve long-term growth and sector goals.
The elephant in the room is insurers losing access to input tax credit (ITC). What are the challenges?
Patnaik: Our priority continues to be the customer — we have passed the entire benefit of GST waiver to them.
Even GST on commissions has been absorbed. Around 95 per cent of LIC’s business is sourced through 1.5 million agents — we must balance customer and agent needs.
Life insurance supports around 3 million agents across India.
As India’s economy grows, penetration will increase, and so will agent commissions.
We are developing products to cater to new lifestyles like early retirements and staggered retirements — even people at 25 can now start planning annuities.
Is there a plan to cap commissions and how are you navigating the challenge of ITC withdrawal?
Chugh: The ITC situation is challenging but as the Irdai chairman [Ajay Seth] noted at Bima Manthan, this is the first time the government has reduced its own revenue, sharing part of the burden with the sector.
That places responsibility on the industry to manage the rest.
There are four key stakeholders: The customer, the manufacturer [insurers], the distributor, and the vendors who provide services such as rentals, outsourcing and staffing.
As a sector, we have collectively agreed that no negative impact will be passed on to customers.
Beyond that, the remaining burden must be shared among the other three stakeholders.
Distributors also need to absorb part of it, and discussions with banks, agents, brokers, and aggregators are ongoing. LIC’s stance of not passing the burden to agents is important, especially since many households depend on agent commissions.
New or smaller agents should not be adversely affected; negotiations will need to focus on larger intermediaries who have more room to absorb some of the GST impact.
This transition will not happen overnight.
CEOs across major companies are coordinating closely to determine how vendors, manufacturers, and distributors can fairly share the loss of input tax credit.
Everyone must acknowledge their part in bearing this responsibility.
Do you agree that all the stakeholders have to absorb some hit?
Balasubramanian: Absolutely. If we want to pass benefits to customers — and we are all committed to doing that — the industry must tighten costs.
This includes commissions, technology expenses, rentals, and overall operational spending. We need to improve productivity and efficiency, adopting a less is more philosophy.
This won’t happen overnight; it may take six to twelve months to reorganise and optimise each cost component.
As insurance awareness and penetration increase, we can also benefit from economies of scale.
Growth in topline, greater automation, AI, digitisation, and streamlining our cost structure are essential in a high-cost industry like ours.
Support from vendors and technology partners is also important, and if all stakeholders work together, we will manage this transition.
The industry has navigated many regulatory changes before — surrender charges, expense of management rules — and this is another such phase. The positive aspect this time is that the customer gains the most.
Are there any operational or structural adjustments that can be considered so that the profitability is not compromised?
Bagchi: On the GST issue, I believe we should move forward.
Changes like this have happened before: Fixed-rate home loans moving to floating, mutual funds shifting from upfront to trail commissions, service tax absorption.What matters is industry growth.
Without growth, nothing — including GST changes — can be absorbed.
Our focus must be on delivering more value to customers.
In protection, customers want four things: low premiums, high coverage, quick issuance, and instant settlement.
Everything across operations, costs, and product design should move these levers.
We must also acknowledge that much of our current distribution serves affluent customers.
Other industries are seeing major growth through alternate and digital channels, such as online distributors and mobile platforms.
Our sector has significant room to improve here.
If we keep prioritising customers and efficiency, operational adjustments will naturally follow.
And because this is a risk business, we must consistently reduce bad risks: Fraud, adverse selection, anti-selection. PMJJBY has shown this is possible.
Will the private sector too pass on the benefit of GST cut to the customer?
Bagchi: We have already done it. We have to continuously make our product better.
We must not forget, we are not sitting on an island and in an oasis.
We compete with other savings pools.
When we are competitive, we have to communicate to the customer.
