Finance Ministry Calls For GST Reduction On Insurance Among Other Demands In Lok Sabha

The Finance Ministry, in the 17th Lok Sabha session, presented certain recommendations for the insurance industry in India, which includes reduction of Goods and Services Tax on products.

Most of these recommendations have been on the industry wishlist for quite some time, and aim to increase penetration and affordability.

Here are some of the key recommendations:

• A need to rationalise the GST rate from current 18% levels on health and term insurance products. The committee has recommended that GST rates applicable to health insurance products, particularly retail policies for senior citizens and microinsurance policies (up to limits prescribed under PMJAY, presently Rs 5 lakh) and term policies may be reduced to make insurance more affordable.

• Allow composite licensing for an insurer to undertake life, general, or health insurance under one entity which is currently not permitted under the Insurance Act, 1938 and the Insurance Regulatory and Development Authority of India's regulations. This could help offer customers more choice and value, such as a single policy to cover life, health, and savings.

• To promote microinsurance—that protects low-income people from financial losses with affordable products—smaller, niche players in various geographic areas may be required. Therefore, the capital requirement of Rs 100 crore may be reduced for such players.

• Recommended that insurance companies be permitted to provide risk management and value-added services that are ancillary to the insurance business.

• Proposal to include the "missing middle" in the Ayushman Bharat Scheme on a paid basis to close a major insurance gap. Affordable premium and cashless settlement facilities would encourage people to buy health insurance. Also, the coverage of OPD, the diagnostic and wellness component, for regular medical claim insured—including group medical insurance—would reduce the financial burden of significant recurrent expenses, particularly for patients with chronic illnesses, the committee suggested.

• The committee has recommended that the government should explore options to insure homes and properties, especially those of economically vulnerable groups, in areas susceptible to catastrophic damages with the aid of central/state government. This may require a specialised insurance business to be set up by one of the public sector general insurance companies, with subsidised premium for disaster-prone areas.

• The financial condition of the four public sector general insurance companies needs to be strengthened. The committee observed that they lack adequate capital and have lagging insolvency ratios. A roadmap must be established with appropriate timeline for performance improvement and if this does not happen, further aggressive measures must be evaluated. They also recommended level-playing ground for PSUs, which compulsorily have to participate in government schemes and are liable to get TDS on GST unlike their private peers.

• Recommendation for the IRDAI to consider instituting a system similar to what the Reserve Bank of India has instituted—a formal ombudsperson system—to deal with consumer grievances.