The impact of the GST-driven input tax credit (ITC) loss on life insurers seems to be playing out most sharply in the bancassurance channel during Q3 FY26 for both HDFC Life and ICICI Prudential Life, where parent banks continue to account for a large share of new business.
At HDFC Life, bancassurance contributes over 60 percent of annualised premium equivalent (APE), with HDFC Bank alone accounting for the bulk of that flow. At ICICI Prudential Life, bancassurance makes up around 25-30 percent of APE, with ICICI Bank contributing roughly half of the channel’s volumes.
This structural dependence may be a reflection of why negotiations around post-GST commercial realignment are not just with third-party distributors, but naturally and materially with parent banks, even as insurers expand agency, partnership and proprietary channels.
GST reset hits banca-heavy insurers
The removal of input tax credit following the GST cut has forced insurers to revisit distributor economics, particularly in bancassurance where commissions are a significant cost line.
HDFC Life said it has completed negotiations across distributors, including banks, and implemented revised commercial terms.
“Short answer is negotiations were completed, and it’s moved on in terms of what we said that we would do,” MD & CEO Vibha Padalkar said during Q3 FY26 earnings call, adding that discussions with all distributors are now concluded and the company has transitioned to the new structure.
Some of these measures were implemented mid-quarter after the GST announcement in late September. “You’ll see some part of it in Q3, with more flowing through in Q4 and progressively thereafter,” Padalkar said.
However, queries sent to HDFC Life on the details of these negotiations remain unanswered until the time of publishing.
ICICI Prudential Life, however, said negotiations are still ongoing, reflecting the diversity of its partner base, including its parent bank.
“We’ve got multiple types of partners, and our approach differs across them. Given this diversification, closing some of these commercials takes time,” MD & CEO Anup Bagchi said, during Q3 FY26 earnings call.
The insurer clarified that the ITC loss has already been absorbed. “Input tax credit is no longer available and that cost has been taken on the P&L and VNB,” it said, adding that any benefit going forward would come through commission rationalisation rather than ITC reversals.
Parent banks key to growth, and the slowdown
The heavy reliance on parent banks also perhaps explains why bancassurance growth has lagged this year.
At HDFC Life, bancassurance growth for the nine-month period stood at just 2 percent, pulling overall growth below industry levels.
“Yes, banca has seen lower growth this year,” Vibha Padalkar said, adding that the softness should be viewed in context. “If you look at the two-year CAGR, growth is reasonably strong, and we believe the channel will continue to deliver.”
The insurer expects growth to normalise in FY27 as bancassurance stabilises and proprietary channels scale up.
At ICICI Prudential Life, bancassurance grew 10.5 percent year-on-year in Q3 FY26, contributing 26.7 percent to APE, which is a relatively lower number compared to the previous quarters for the company, with ICICI Bank continuing to deliver steady volumes.
Value over volume amid recalibration
Both insurers stressed that part of the slowdown was strategic, driven by a sharper focus on quality and value, especially given the high share of parent banks in distribution.
HDFC Life said it selectively stepped back from certain non-par opportunities where pricing and quality thresholds were not met.
“In some cases this quarter, we didn’t participate to the extent we could have because of the commercials and the quality of business we wanted,” management said.
The company said it is increasingly tracking counter share of value of new business (VNB) at key partners like HDFC Bank rather than chasing topline growth.
“Our focus is on improving counter share of VNB, not just volumes,” management said.
Protection gaining ground within banca
Despite overall softness, protection business within bancassurance is showing strong traction — particularly important given banks’ dominance in distribution.
At HDFC Life, protection growth in the banca channel exceeded 40 percent in Q3, though management cautioned that the impact is muted at the headline level due to lower ticket sizes versus savings products.
“You need to sell about 2.5 protection policies to equal one savings policy in banca,” Padalkar said.
ICICI Prudential Life also reported strong protection momentum across channels, including ICICI Bank, while noting that ULIP sales remain sensitive to market conditions.
HDFC Life expects Q4 to build on recent momentum, with growth supported by protection and steady savings demand. ICICI Prudential Life said it exited Q3 on a positive trajectory and expects momentum to continue, aided by diversified distribution and ongoing regulatory reforms.
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