Insurance Reset

Can GST relief and foreign capital help bridge India's insurance gap?

- By HIMANI KOTHARI

THE GOVERNMENT IS BETTING that a mix of tax relief and market-opening reform can bridge one of the country's most stubborn gaps: Insurance coverage. A new bill that allows 100 percent foreign ownership of insurers is expected to draw ₹35,000-70,000 crore into the sector while a recent exemption of insurance premiums from the Goods & Services Tax (GST) has reduced costs for consumers. These two steps, say analysts, could help raise India's overall insurance penetration, which has slipped from 4 percent of GDP in FY23 to 3.7 percent in FY24, well below the global average of 7 percent. The figure for life insurance is 2.8 percent and 1 percent for non-life.

The push comes as the insurance regulator sharpens its goal of 'Insurance for All' by 2047.

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025—passed by Parliament on December 17—allows 100 percent foreign direct investment (FDI) in insurance, up from 74 percent currently. It also eases rules for foreign reinsurers, simplifies merger norms and introduces consumer-focussed measures such as a policyholders' education and protection fund, and enhanced data protection provisions.

“Full foreign ownership can attract long-term patient capital, encourage new global entrants, and accelerate product, technology, underwriting and distribution innovation,” says Shruti Ladwa, partner & insurance leader, EY India.

And, from September 22, there is no GST on health and life insurance premiums compared to 18 percent earlier.

Together, she feels, these reforms can strengthen supply and stimulate demand, expanding coverage in underpenetrated markets. “While the impact will be gradual, the policy alignment is far more conducive to sustained growth in penetration than earlier reform cycles.”

STRING OF REFORMS