Mumbai: Health insurers may need to raise premiums by 3–5% to offset the loss of input tax credit (ITC) following the Centre’s move to exempt individual life and health insurance policies from GST, according to a report by Kotak Institutional Securities.

Finance Minister Nirmala Sitharaman announced the exemption on Wednesday, covering all individual life products — term, ULIPs, endowment policies, and reinsurance — as well as health policies including family floaters, senior citizen plans, and reinsurance.

Why insurers may hike premiums

Earlier, health and life insurance attracted 18% GST. While customers will now see an effective 12–15% reduction in premiums, insurers lose the ability to claim ITC on services like distribution commissions, promotions, and operational expenses.

Kotak noted that while GST on reinsurance is also exempt, other costs remain taxable. This could force insurers to pass on part of the burden to customers or distribution partners.

“A 3–5% hike in tariffs (for new and existing retail policies) may be required by health insurance companies in order to make them margin-neutral,” Kotak said.

Standalone insurers most affected

Standalone players such as Star Health, Niva Bupa, and Care Health may be among the most impacted:

  • Star Health: Paid over ₹3,000 crore in GST in FY25 and availed ITC worth ₹395 crore. Kotak estimates a 1–3% tariff hike will be needed.
  • Niva Bupa: Likely to face the sharpest impact with a 4% tariff hike, given higher expenses and ceding ratio.
  • Care Health: May need a 2% tariff hike, having paid ₹1,263 crore in GST and availed ITC of ₹392 crore.

Possible lag in tariff revision

Kotak cautioned that tariff revisions may not be immediate, as some policyholders could use the one-month free look-back period to surrender old policies and buy cheaper ones.

It added that multi-line general insurers may face a lower impact, as GST on shared services could be absorbed by other business lines. For life insurers, the effect remains unclear, given multiple product categories and reinsurance structures.