Insurance Body Seeks Cut in GST on Health Policies

Insurance Body Seeks Cut in GST on Health Policies

Sub: Economy

Sec: Fiscal Policy

Key Points:

• Reduction in GST:
  • The Confederation of General Insurance Agents’ Associations of India has urged the government to reduce GST on individual health insurance policies from 18% to 5%.
  • This reduction aims to encourage people to avail health insurance policies as a measure of social security.
• Growth in Premiums vs. Coverage:
  • The general insurance industry collected ₹109,000 crore in premiums under the health portfolio in fiscal 2023-24 (FY24).
  • Despite the gross premium doubling over the last five years, the number of lives covered and policies issued remained meager.
• Out-of-Pocket Expenses:
  • Out-of-pocket expenses for health remain high at 48.2%, leading to substantial medical bills for common people.
  • Senior citizens with health insurance often face high premiums of ₹12,000 to ₹15,000 per lakh from their limited income resources.
• Regional Disparities:
  • The stagnation in the share of health insurance is restricted to only five states in India.
  • Vast areas of other states remain underpenetrated in terms of health insurance coverage.
• Decline in Policy Renewals:
  • The renewal rate of health insurance policies is declining alarmingly due to frequent premium hikes and medical inflation.
• Global Context of GST on Insurance:
  • India has the highest GST on insurance in the world.
  • The confederation argues that this needs to be addressed to attain the goal of “Insurance for all by 2047”.
• Recommendations by the Standing Committee on Finance:
  • The committee, in its 66th report submitted to both houses of Parliament in February 2024, recommended the rationalization of GST on health insurance.

Implications:

• For Policymakers:
  • Lowering the GST on health insurance can make these policies more accessible, improving social security and health coverage.
• For the General Public:
  • A reduction in GST could lead to lower premium costs, making health insurance more affordable, especially for senior citizens and low-income groups.
• For the Insurance Industry:
  • Reduced GST could boost policy renewals and expand coverage, addressing the current decline in policy renewals due to high costs.
• For Regional Development:
  • Addressing regional disparities in health insurance coverage can lead to more equitable access to health services across the country.

Conclusion:

The Confederation of General Insurance Agents’ Associations of India’s call to reduce GST on health insurance from 18% to 5% highlights a critical step towards making health insurance more affordable and widespread. This measure, aligned with the goal of “Insurance for all by 2047”, can significantly impact social security, economic burden on families, and the overall growth of the insurance sector in India.

IRDAI Vision 2047: Insurance for All

Objective:

• Insurance for All by 2047 aims to ensure every citizen has appropriate life, health, and property insurance coverage.
• Every enterprise is supported by suitable insurance solutions.
• Make the Indian insurance sector globally attractive.

Pillars:

• Insurance Customers (Policyholders)
• Insurance Providers (Insurers)
• Insurance Distributors (Intermediaries)

 Focus Areas:

• Making available the right products to the right customers.
• Creating a robust grievance redressal mechanism.
• Facilitating ease of doing business in the insurance sector.
• Ensuring the regulatory architecture is aligned with market dynamics.
• Boosting innovation.
• Enhancing competition and distribution efficiencies while mainstreaming technology.
• Moving towards a principle-based regulatory regime.

 Significance:

• Affordable Insurance Access: Helps households across the country access affordable policies covering health, life, property, and accidents.
• Faster Claim Settlements: Policies offer faster claim settlements, sometimes within hours.
• Additional Benefits: Includes benefits like gym or yoga memberships.

State of the Insurance Sector in India

Growth and Density:

• Life insurance density increased from USD 11.1 in 2001 to USD 91 in 2021.
• Total global insurance premiums in 2021 increased by 3.4% in real terms, with non-life insurance growing by 2.6%. 

Significance of IRDAI in Transforming the Insurance Sector

Insurance Growth:

• Insurance penetration (percentage of insurance premium to GDP) at 4.2% in 2021-22 compared to 2.71% in 2001-02.
• Insurance Density (ratio of premium to population) at $91 in 2021-22 compared to $11.5 in 2001-02.
• ‘Insurance for All’ by 2047: IRDAI has committed to enable ‘Insurance for All’ by 2047, where every citizen has appropriate life, health, and property insurance cover etc.

Expanded Regulatory Role:

• New intermediaries have started operating in the market, like corporate agents, Bancassurance (selling insurance products through banks), online sales, etc.
• Digital Transformation: Accelerated by the authority’s guidance on e-KYC, paperless policies, digital payments, etc.

Major Initiatives by IRDAI

Bima Sugam:

• An online insurance marketplace for buying, selling, and servicing insurance policies as well as settling claims.
• Part of IRDAI’s Bima Trinity – Bima Vistaar, Bima Vahak, and Bima Sugam.

 Saral Jeevan Bima:

• Provides basic protection to self-employed individuals or people in low-income groups.

Integrated Grievance Management System:

• To create a central repository of grievances across the country and provides various analyses of data indicative of areas of concern to the insurance policyholder.

Pan India Survey:

• Conducted through the National Council of Applied Economic Research (NCAER) to improve its strategy of creating insurance awareness.

Mandating Board Approved Policy for Insurers:

• Insurers are mandated to have a Board approved Insurance Awareness Policy with an action plan for organizing various activities promoting consumer awareness on various aspects of insurance. 

Conclusion

As the insurance sector continues to evolve, IRDAI remains committed to adapting and enhancing its regulations to meet the changing needs. IRDAI’s initiatives in areas such as promoting financial inclusion, encouraging innovation, etc., will be instrumental in driving the sustainable growth of the insurance sector.