Life insurers cut agents' slice to give customers the full GST pie

To ensure that the entire benefit of the goods and services tax (GST) exemption on insurance policies purchased by individuals is passed on to consumers without any change in product pricing, life insurers will reduce distributor commissions on new policies as well as renewals, they have conveyed to the Insurance Regulatory and Development Authority of India (Irdai).

- SUBRATA PANDA & AATHIRA VARIER

According to the decision communicated to the regulator through the Life Insurance Council, companies will offset the impact of the removal of input tax credit (ITC) due to the zero GST levy on insurance premiums, by slashing distributor commissions to the extent of the GST cut i.e., 18 per cent, sources aware of the development said.

The revised commission structure for distributors will take effect from October 1, sources said. Letters have already been sent to agency channels, and discussions are underway with banks on the matter.

With the change in commissions, companies and distributors will both bear the impact of the removal of input tax credit (ITC), estimated to be worth around ₹15,000 crore. On their part, companies will not reprice products, so that the GST cut is fully transferred to consumers. However, they are expected to tweak their product mix to mitigate the impact on their margins, the sources noted.