The goods and services tax on insurance premiums should be removed since insurance is a necessity, and this would make insurance more affordable and cheaper for people, potentially leading to increased penetration in the market, said Nilesh Sathe, independent director at Tata AIA Life Insurance, and former member of the insurance regulatory body IRDAI.
Currently, GST on insurance has increased from 6 percent to 18 percent. However, this should not be seen merely as a revenue source for the government, he told Moneycontrol on January 23.
Sathe’s comments came at a time when India is aiming for the ‘Insurance for all by 2047’. Moreover, penetration levels of insurance in India has reduced to 3.7 percent from 4 percent earlier.
On January 29, Moneycontrol reported that India’s insurance sector is expecting some key announcements in the upcoming Budget such as tax incentives for policyholders, reduction of goods and services tax (GST), and implementation of mandatory basic term life insurance coverage for formal employment.
Most insurance firms are expecting an increase in tax deduction limits for policyholders under section 80C for life insurance premiums, and tax incentives for policyholders under section 80D.
Sathe further said that mis-selling or force-selling has increased in the banking segment, but instead of curbing bancassurance, banks need internally assess to stop such practices.
Last year, Union finance minister, the RBI governor and the IRDAI chairman cautioned banks over the mis-selling, and said banks must provide options to the customers.
Sathe also said that insurance companies rely too much on banks for selling policies and it is essential to limit this dependency to just 2-5 percent of total sales.
“This would reduce the banks’ power over how insurance is sold, considering their wide network in India,” he added.
When asked about the concept of open architecture in insurance sales, Sathe said he is skeptical.
“Allowing agents to sell products from multiple insurance companies could lead to job creation in terms of self-employment through agency roles. Restricting open architecture could limit this growth,” he said.
“Without loyalty to a single insurer, agents might chase higher commissions, potentially leading to less customer-focused service,” he added.
Sathe further suggested a compromise where agents could sell one general insurance and one health insurance product or two of each, rather than adopting a full open architecture model.
When comparing insurance to mutual funds, Sathe noted that while mutual fund investments can be withdrawn, insurance policies typically cannot, making the implications of mis-selling in insurance much more severe. He further noted that open architecture might lead to agents promoting products based on commission rather than customer need, with customers having little recourse if mis-sold.
