Life Insurance's GST Boost Comes At A Demand-Margin Trade Off — What Does It Mean For Investors?
Over time, higher volumes could provide operating leverage, helping insurers absorb part of the cost pressure. However, analysts caution that this benefit is unlikely to be immediate.
The government’s move to exempt Goods and Services Tax (GST) on individual life insurance premiums is being viewed as a structural positive for demand, but one that introduces near-term challenges on profitability, according to a recent sector note by Nuvama Research. Lower premiums are expected to improve affordability and lift penetration, particularly in protection and traditional savings products.
However, the removal of input tax credit (ITC) means insurers will no longer be able to offset GST paid on expenses such as distribution commissions, technology and servicing.
Against this backdrop, SBI Life and HDFC Life are seen as best positioned, while Axis Max Life remains a growth play with higher margin sensitivity. Nuvama has retained 'Buy' ratings on SBI Life and HDFC Life, and continues to recommend Axis Max Life.
Demand Tailwind: Lower Cost, Higher Volumes
From a customer perspective, the GST exemption directly reduces the upfront premium burden, making life insurance products more attractive to price-sensitive buyers. Analysts expect this to support new business volumes and sustain long-term growth.
The policy change comes against a backdrop of already strong momentum. Private life insurers reported 20.3% year-on-year growth in individual annualised premium equivalent (APE) in December, while LIC recorded a 27.5% increase, reflecting robust demand across the sector, as per industry data compiled by Nuvama.
Over time, higher volumes could provide operating leverage, helping insurers absorb part of the cost pressure. However, analysts caution that this benefit is unlikely to be immediate.
Margin Headwind: Input Tax Credit Loss Pressures
The immediate impact is expected on margins. With the loss of ITC, expense ratios are set to rise, particularly for insurers with agency-heavy distribution models or higher commission structures.
Companies may look to mitigate the impact through product repricing, commission rationalisation or efficiency measures, but analysts expect near-term pressure on value of new business (VNB) margins. Channel mix is therefore emerging as a critical differentiator in how well insurers manage the transition.
Who's The Best Positioned?
Among listed players, SBI Life Insurance is seen as the least affected by the change. Its strong cost discipline, dominant bancassurance franchise and scale advantage are expected to cushion the impact of higher operating costs. SBI Life has also continued to gain market share, strengthening its relative positioning.
HDFC Life Insurance is also viewed as well placed, supported by a diversified product mix and a meaningful presence in linked and protection businesses. Digital efficiencies and pricing flexibility provide additional buffers against margin pressure.
Axis Max Life Insurance stands out on growth momentum, but analysts flag higher sensitivity to margin compression, making execution on cost control a key monitorable.
For Life Insurance Corporation of India, the large policy base and sovereign backing offer stability. However, its traditional-heavy product mix could limit flexibility in repricing and margin management in the near term.
For investors, the GST exemption creates a two-phase impact. In the short term, margin compression and volatility in VNB metrics are likely as insurers adjust to the loss of ITC. Over the medium term, stronger demand, rising penetration and scale benefits should help normalise profitability.
