Parliament panel recommends below 18% GST on health insurance, microinsurance

The high rate of GST results in a high premium burden, which acts as a deterrent to getting insurance policies, the report said

The parliamentary panel on finance, led by MP Jayant Sinha, has recommended to reduce the Goods and Services Tax (GST) on health insurance products for senior citizens and microinsurance products below 18 percent to make it more affordable.

“The Committee feels that there is a need to rationalise the GST rate on insurance products, especially health and term insurance, which is 18 percent at present. The high rate of GST results in a high premium burden, which acts as a deterrent to getting insurance policies,” the panel said in its report on ‘Performance review and regulation of insurance sector’.

The committee is of the view that to make insurance more affordable, GST rates applicable to health insurance products, particularly retail policies for senior citizens and microinsurance policies and term policies may be reduced, it said.

The Committee observed that the financial condition of four public sector General Insurance Companies needs to be strengthened.

“They lack adequate capital and have lagging insolvency ratios. In regard to their performance, the Committee have been apprised that their overexposure in health insurance business, i.e. 50 percent of their total business, has been one of the reasons, as the same has led to Rs 26,000 crore of losses in five years from 2016-17 to 2020-21.

The Committee has recommended that an appropriate strategic roadmap to implement all the remedial steps, should be established for these companies to improve their competitiveness and enable them to attract sufficient capital and talent to grow. This roadmap should have appropriate timelines for demonstrable performance improvement. If performance does not improve sufficiently quickly, there should be further aggressive measures that should be evaluated. The Board of each of these Public Sector General Insurance Companies should approve these strategic roadmaps and commit to performance improvements, it said.

The New microinsurance products need to be developed and provided as affordably as possible for the financial protection and security of the low-income and vulnerable sections of society who are exposed to various risks such as health, crop, life, etc. The committee recommended that the capital requirement of Rs 100 crore may be reduced for such players.

“Developing innovative and customised products that suit the needs and preferences of the target population is vitally important. The committee feels that this may require encouraging smaller, niche players in various geographic areas. The committee recommends that the capital requirement of Rs 100 crore may be reduced for such players,” it said.

In order to ensure enforcement of motor insurance, the committee suggested that financial institutions should provide auto and commercial vehicles loans when they have proof of insurance coverage. “Insurance Regulatory and Development Authority of India (IRDAI) and Reserve Bank of India should evaluate these requirements,” the report said.

As per the Motor Annual Report, 2019-20, of the Insurance Information Bureau of India (IIB), of the over 25.33 crore vehicles on the road in India as on March 31, 2020, the percentage of uninsured vehicles was nearly 56 percent. This indicates that a large number of vehicles (particularly commercial vehicles) are plying on the roads without any insurance cover, which poses a risk to the owners and third parties in case of accidents or damages.

In India, as per the provisions of the Insurance Act, 1938, life insurers can only offer life insurance products, while general insurers can offer non-life insurance products, such as health, motor, fire, marine, etc. The IRDAI does not allow composite licensing for insurance companies, which means that an insurance company cannot offer both life and non-life insurance products under one entity.

The committee in the report stated, “Allowing composite licensing could provide further impetus to the insurance sector owing to its various benefits. It can cut costs and compliance hassles for insurers, as they can run different insurance lines under one roof. It can also offer customers more choice and value, such as a single policy that covers life, health, and savings. It can boost insurance reach and awareness in India, as customers can get all-in-one insurance from one provider, with lower premiums and easier claims.

The report recognised Ayushman Bharat Scheme as a highly successful initiative of the government to provide much-needed health insurance coverage to low-income families.

But the scheme can be further strengthened making it possible for the Missing Middle to participate on a paid basis, which would close a major insurance gap, the panel said in the report.