Insurance Stocks Soar as GST 2.0 Exempts Taxes on Life and Health Covers

Indian insurance stocks lit up Dalal Street on September 4 after the GST Council scrapped the 18% levy on individual life and health policies, a move hailed as a major transformative tax reform for the sector.

Shares of ICICI Prudential Life Insurance surged 6%, whereas GIC Re, ICICI Lombard and LIC each rose around 5% each. HDFC Life and SBI Life also rallied nearly 5%, pushing the insurance pack sharply higher. In morning trade, Niva Bupa Health Insurance briefly stole the spotlight, soaring more than 10%.

Meanwhile, the reforms go beyond just retail covers. A wide spectrum of products, ranging from term life policies, ULIPs and endowment plans to health covers such as family floaters and senior citizen plans, will now be tax free. Associated reinsurance services have also been exempted, while GST on third-party insurance for goods carriages has been cut from 12% to 5%.

Market experts believe the changes will not just ease tax burden on customers, but also help with widening insurance coverage among the masses. “The GST exemption on health insurance premiums is a positive step that will make healthcare more affordable and accessible for millions,” said Bankim Mapara, CFO at Universal Sompo General Insurance. “Families will notice the benefit straight away.”

Analysts echoed the sentiment, with HDFC Securities’ Pranab Uniyal stating that the sweeping cuts across insurance and other consumer categories could deliver a powerful consumption boost. CLSA estimated that premiums, once stripped of the 18% GST, will see affordability rise sharply, unlocking volume growth for insurers.

However, there’s also a slight caveat in the picture. Without input tax credit, insurers may need to shoulder some additional costs themselves. “This could have a short-term impact on profitability, but the net effect will still be cheaper premiums for customers compared with the 18% GST they currently pay,” said PL Capital in a note.

Prashant Nair of Ambit Capital pointed out the wider ripple effects of the changes. “Higher coverage could indirectly benefit hospitals and healthcare providers,” Nair said. Meanwhile, Tata Asset Management’s CIO Rahul Singh said the exemption fits into a broader consumption-boosting policy arc, alongside income tax cuts and lower interest rates that is likely to lift growth across multiple sectors.

Now while the near-term knee jerk reaction may trigger slightly thinner margins for insurers, these changes will likely ensure a bigger, more sustainable customer base in the long run.

Prashant Nair of Ambit Capital pointed out the wider ripple effects of the changes. “Higher coverage could indirectly benefit hospitals and healthcare providers,” Nair said. Meanwhile, Tata Asset Management’s CIO Rahul Singh said the exemption fits into a broader consumption-boosting policy arc, alongside income tax cuts and lower interest rates that is likely to lift growth across multiple sectors.

Now while the near-term knee jerk reaction may trigger slightly thinner margins for insurers, these changes will likely ensure a bigger, more sustainable customer base in the long run.