GST cut may crash your insurance bill, but Kotak says there’s a catch coming soon

Starting September 22, individual health and life insurance policies will be exempt from the 18% Goods and Services Tax. While this will reduce policy prices by 12–15% for customers, Kotak Institutional Equities warns it could erode margins for insurers, who now lose access to input tax credits (ITC) on key services like commissions and operations.

To offset this, insurers may raise tariffs by 3–5%, Kotak analysts estimate. For Star Health, which paid ₹26 billion in net GST in FY2025, this translates to a necessary 1–3% hike. The burden is heavier for Niva Bupa, where higher expense and reinsurance ratios may demand up to a 4% increase. Care Health may need to adjust rates by 2%.

Kotak’s analysis assumes insurers cannot benefit from the inverted tax structure, since GST exemption removes eligibility for input credits. Though reinsurance will also be GST-free, other operational services still incur tax, with no way to reclaim it under the new regime.

Retail health premiums grew 12% in FY2025, slower than prior years. Kotak sees the GST cut as a potential catalyst to revive demand, especially as premiums fall for the end-user. But the firm also flags risks: a lag in tariff hikes, customer churn during the one-month “free-look” window, and dilution of impact for multi-line insurers who can offset GST elsewhere.

While the net benefit to consumers is clear, the industry must recalibrate quickly. “We await further commentary from insurers,” Kotak notes, as companies assess how to manage costs in the new tax landscape.