A parliamentary panel has suggested a GST rate of below 18% on health insurance and microinsurance.
The parliamentary finance panel, chaired by MP Jayant Sinha, has proposed a reduction in the Goods and Services Tax (GST) on health insurance and microinsurance products for senior citizens to below 18%, aiming to enhance affordability.
According to the committee’s report on the ‘Performance review and regulation of the insurance sector,’ it highlights the necessity to rationalize the current 18% GST rate on insurance, specifically health and term insurance. The existing high GST rate contributes to a substantial premium burden, acting as a deterrent for individuals to obtain insurance coverage.
The committee advocates for a reduction in GST rates for health insurance products, especially retail policies catering to senior citizens, microinsurance policies, and term policies. This measure is intended to enhance the accessibility and affordability of insurance.
Insurance PSUs:
The Committee noted the imperative to bolster the financial standing of four public sector General Insurance Companies. These companies currently face challenges due to insufficient capital and suboptimal solvency ratios. A significant factor contributing to their financial difficulties is their extensive exposure to the health insurance sector, accounting for 50% of their total business. This overreliance has resulted in substantial losses amounting to Rs 26,000 crore over the past five fiscal years, from 2016-17 to 2020-21.
The Committee proposes the formulation of a strategic roadmap outlining remedial measures for these companies to enhance their competitiveness. The objective is to attract ample capital and talent, fostering growth. This roadmap should incorporate specific timelines for measurable performance improvement. If the companies fail to exhibit significant progress within the stipulated period, the Committee suggests a consideration of more assertive measures. Each Public Sector General Insurance Company’s Board is recommended to endorse these strategic roadmaps, committing to achieving performance enhancements.
Micro-Insurance:
Creating new microinsurance products is essential to ensure the financial protection and security of low-income and vulnerable segments of society, who face various risks like health, crop, and life uncertainties. The committee emphasizes the need for developing these products in a cost-effective manner. To facilitate this, the committee suggests a reduction in the capital requirement from Rs 100 crore for such players.
Innovation and customization of insurance products tailored to the specific needs and preferences of the target population are crucial. The committee underscores the importance of encouraging smaller, niche players in different geographic areas to achieve this goal. To support the entry of these players, the committee recommends a reduction in the capital requirement from the current Rs 100 crore.
Motor-insurance:
To enhance the enforcement of motor insurance, the committee proposes that financial institutions should grant auto and commercial vehicle loans only when valid proof of insurance coverage is provided. The report suggests that both the Insurance Regulatory and Development Authority of India (IRDAI) and the Reserve Bank of India should assess and implement these requirements.
As highlighted in the Motor Annual Report for 2019-20 by the Insurance Information Bureau of India (IIB), over 56 percent of the 25.33 crore vehicles on Indian roads as of March 31, 2020, were uninsured. This alarming statistic underscores the substantial risk associated with a significant number of vehicles, especially commercial ones, operating without insurance coverage, posing potential threats to owners and third parties in the event of accidents or damages.
Composite licensing:
In India, the Insurance Act of 1938 dictates that life insurers are limited to offering life insurance products, while general insurers can provide non-life insurance products, covering health, motor, fire, marine, among others. The Insurance Regulatory and Development Authority of India (IRDAI) does not permit composite licensing for insurance companies, preventing a single entity from offering both life and non-life insurance products.
The committee emphasizes in its report, “Allowing composite licensing could significantly benefit the insurance sector. It has the potential to streamline costs and reduce compliance complexities for insurers, enabling them to operate various insurance lines under one organizational umbrella. This approach can also present customers with increased choices and value, such as a unified policy covering life, health, and savings. Moreover, it has the potential to enhance insurance accessibility and awareness in India by providing customers with comprehensive coverage from a single provider, featuring reduced premiums and simplified claims processes.”
Ayushman Bharat:
The report acknowledged the Ayushman Bharat Scheme as a highly successful governmental initiative, offering essential health insurance coverage to low-income families.
The program’s effectiveness could be heightened by enabling the Missing Middle to engage on a paid basis, thereby bridging a substantial gap in insurance coverage, as outlined in the panel’s report.