GST 2.0 to enhance persistency in life insurance plans; HDFC Life, Niva Bupa top buys: Siddhartha Khemka

The insurance industry is set to benefit meaningfully from the GST Council’s recent decision to exempt retail health and life insurance from the 18% tax previously applicable.

Effective September 22, the move is expected to lower policy premiums, improve affordability, and accelerate penetration in a market where protection and health coverage remain significantly underpenetrated.

For consumers, the relief is immediate. A policy with a base premium of ₹100, which earlier cost ₹118 under the old regime, would now be priced closer to ₹104–105, even after insurers factor in the loss of input tax credit (ITC).

This translates into notable savings for customers and could spur demand across health and protection categories. Insurers may also recalibrate commission structures to offset ITC losses, thereby streamlining costs while continuing to pass on benefits.

The exemption is also likely to enhance persistency in life insurance and improve retention in health plans. Even partial savings passed on to customers can improve the internal rate of return (IRR) for savings-linked life products, while demand for protection plans—typically offering higher margins—may accelerate further.

Live Events

In the near term, however, a transition period up to September 22 could lead to policy cancellations, delayed purchases, and renewal deferrals, creating short-term liquidity pressures.General insurers, too, stand to gain indirectly. Reduced GST on automobiles is expected to support vehicle sales, in turn expanding motor insurance volumes.Additionally, a cut in GST on motor third-party premiums for goods carriers will ease cost pressures, though it may also limit the likelihood of price hikes in that segment this year.

Structurally, these reforms position the sector for stronger growth in the second half of FY26, aided by both a low base in FY25 and a healthier product mix.

As affordability improves and protection products gain traction, profitability is expected to strengthen, particularly in non-participating categories.

Over the medium term, GST 2.0 is likely to make essential insurance products more accessible, lower cost barriers, and drive penetration across retail health, protection, and motor segments.

While short-term disruptions are inevitable, the reform reflects a clear policy intent to expand household financial security and build a more resilient, consumer-centric insurance landscape.

HDFC Life: Buy| Target Rs 910

HDFC Life continues to demonstrate steady growth, supported by a strong product mix, robust distribution partnerships, and expanding agency channels.

The GST 2.0 reforms, which have exempted retail life insurance from the earlier 18% GST, are expected to materially improve affordability and drive higher penetration of protection products, directly benefitting the company.

With consistent premium growth, rising AUM, resilient margins, and strong solvency, HDFC Life is well-positioned to capture incremental demand from GST-led consumption tailwinds while sustaining healthy RoEV over the medium term.

Niva Bupa: Buy| Target Rs 101

Niva Bupa is well-placed for sustained growth, supported by a strong partner base, diversified distribution channels, and continued focus on cost efficiency.

The GST 2.0 reforms, which have exempted retail health insurance from the earlier 18% GST, are expected to materially improve affordability and enhance penetration of health insurance products, strengthening demand visibility.

With disciplined expense management, expected claims normalization, and high-single-digit price hikes already implemented, Niva Bupa is positioned to capture incremental demand while driving profitability improvement over the medium term.

(The author is Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd)

Add as a Reliable and Trusted News Source(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)



_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}