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

The finance parliamentary panel, led by MP Jayant Sinha, has proposed a reduction in the Goods and Services Tax (GST) on health insurance products for senior citizens and microinsurance products to below 18 percent, aiming to enhance affordability. In its report on the ‘Performance review and regulation of insurance sector,’ the panel emphasized the need to rationalize the GST rate on insurance products, particularly health and term insurance, currently set at 18 percent. The high GST rate imposes a significant premium burden, discouraging individuals from obtaining insurance policies, the committee noted.

To render insurance more accessible, the committee recommended a reduction in GST rates applicable to health insurance products, especially retail policies for senior citizens, microinsurance policies, and term policies. Additionally, the panel highlighted the necessity to bolster the financial condition of four public sector General Insurance Companies, which are facing capital inadequacy and low solvency ratios due to overexposure in health insurance business.

The committee proposed the development of new microinsurance products to provide affordable financial protection for low-income and vulnerable sections of society. It suggested reducing the capital requirement of Rs 100 crore for such players and emphasized the importance of tailored products to meet the diverse needs of the target population.

Regarding motor insurance, the committee recommended enforcing insurance coverage for vehicles by requiring financial institutions to provide auto and commercial vehicle loans only when proof of insurance coverage is provided. With nearly 56 percent of vehicles, particularly commercial ones, operating without insurance coverage, the enforcement of motor insurance is essential to mitigate risks in case of accidents or damages.

Furthermore, the committee advocated for composite licensing in the insurance sector, allowing companies to offer both life and non-life insurance products under one entity. Composite licensing could streamline operations, reduce costs, offer customers more choice, and enhance insurance reach and awareness in India.

Recognizing the success of the Ayushman Bharat Scheme in providing health insurance coverage to low-income families, the report suggested expanding the scheme to allow the Missing Middle to participate on a paid basis, closing a significant insurance gap and further strengthening healthcare coverage in the country.