High GST Rate On Insurance Premium Leading To Lower Collection

When stock market has been rising at a fantastic rate, people prefer SIP or equity investments to long term deposit in life insurance premium. This is leading to a temporary decline in the growth rate of insurance premium

The life insurance penetration in the country has come down by 0.3 per cent in a year, reveals a recent report released by the Insurance Regulatory and Development Authority of India (IRDAI). Similarly, there is no growth in penetration in respect of non-life premium.

It may be due to base effect as the country has become the largest country in the world last year, competition being posed by other financial products like mutual fund and above all imposition of GST on insurance premium, feel experts.

Speaking to Bizz Buzz, D.K. Mehrotra, former LIC chairman, says, “It may be due to the base effect and the competition being posed by other financial products.” Kamalji Sahay, former ED, LIC, cites several reasons behind it.

He said that India's GDP growth of 8.92 per cent in the previous year could not be matched by the growth rate of premium in both life and non-life sectors though prima facie they appear to be growing at a faster rate and this is deceptive. In order to keep pace with the robust GDP growth, the industry must grow at a much faster rate. This is a complex relationship and needs to be interpreted more professionally, even by the media.

During periods of rapid economic growth common people and entrepreneurs shift their priority from long term investment to short term gain and in such an environment the insurance industry is not able to suck funds from the market. For example, today when stock market has been rising at a fantastic rate, people prefer SIP or equity investments to long term deposit in life insurance premium. This is leading to a temporary decline in the growth rate of insurance premium, he said.

Faster generation of profit in business may discourage entrepreneurs from locking funds in insurance premium.

The high GST rate on insurance premium in India lately is also responsible for lower premium collection, the amount that could go to an insurer as higher premium goes to the government, causing serious dent in the premium collection by the insurers.