Health and term insurance premium may turn cheaper; but insurers fear short-term margin hit: HSBC report

Health and term insurance premiums could become more affordable if the Goods and Services Tax (GST) Council clears a rate cut during its two-day meeting that began Wednesday, but insurers may face near-term profitability pressures, according to a report by HSBC Securities and Capital Markets (India).At present, health and term insurance products attract an 18% GST rate. Proposals under discussion include a complete exemption without input tax credit (ITC), a 5% slab with or without ITC, or a 12% slab with ITC, according to ANI.HSBC’s analysis suggests that a full exemption could lower health insurance premiums by around 15%. Even a moderate reduction to 12% with ITC could ease costs by 6%. However, such a move could leave the government with an annual revenue shortfall of $1.2–1.4 billion from GST on premiums, the report noted.Pressure on insurers in short termWhile lower premiums are expected to stimulate demand, insurers could face a 3–6% impact on combined ratios (CR) in the retail health segment due to slower repricing of renewals, which typically takes 12–18 months. Expense ratios will also influence the extent of relief, depending on the availability of ITC.Standalone health insurers are likely to be hit harder than multi-line insurers due to their higher exposure to retail health, HSBC said.

“We think a large part of the impact would be transitionary due to slower back book repricing,” the report added.Despite these near-term pressures, analysts say the move could prove beneficial for both consumers and insurers in the long run. Lower premiums are likely to expand insurance penetration by making health cover more affordable for households, thereby aiding financial inclusion goals.