Limited Impact on Embedded Value, ETCFO
New Delhi [India], September 9 (ANI): Life insurance companies have dismissed concerns over the impact of Goods and Services Tax (GST) exemption on input tax credit, saying they have strategies in place to manage the situation.
According to a report by Centrum Institutional Research, listed players in the life insurance sector remain confident that the effect on their Embedded Value (EV) will be very limited.
It stated “life insurance companies remain confident in mitigating the impact of the GST exemption on Embedded Value (EV)”.
The central government, after the GST rate rationalisation meeting, announced a GST exemption on all health and life insurance premiums, thereby removing Input tax credits to insurers. The new rule will come into effect from September 22, 2025.
The exemption is expected to make insurance policies more affordable for customers as they will no longer need to pay GST on insurance premiums.
However, it also creates pressure on insurance companies’ margins, as they will lose the benefit of Input Tax Credit (ITC) that they could earlier claim on their expenses.
Despite this challenge, insurers have said that they are well prepared. Companies have already put in place a mix of strategies to deal with the change.
These include optimising costs, repricing or relaunching products, and in some cases even absorbing part of the cost impact themselves. Because of these measures, most companies expect only a minor impact on their profitability and valuations.
The report highlighted that all listed life insurance companies have guided for an Embedded Value impact of no more than 1 per cent.
Life Insurance Corporation of India (LIC), the country’s largest life insurer, has expressed confidence that the GST changes will not create major hurdles.
LIC expects the impact on its Embedded Value to be less than 0.5 per cent. On the contrary, the company believes that the GST exemption will support long-term growth in the industry.
The company also sees the changes contributing to a stronger Value of New Business (VNB) in the years ahead.
The report said it is maintaining its current estimates for the sector and reiterated that the GST exemption, while creating some short-term cost adjustments, is ultimately positive for the industry. (ANI)
