Following the government’s reduction of GST on individual health insurance premiums from 18% to 0% effective September 22, 2025, several non-life insurers are set to slash commissions paid to agents and distributors starting October 1, 2025. Companies such as ICICI Lombard General Insurance, Care Health Insurance, and Aditya Birla Health Insurance have notified partners that commissions will now be “inclusive of GST,” effectively reducing payouts by 3-8% to manage the loss of input tax credits (ITC) on expenses like commissions, rent, and marketing. This move, driven by regulatory caps and competitive pressures, aims to pass maximum premium savings to policyholders while rationalizing costs in a sector where retail health premiums hit ₹47,292 crore in FY25.
For policyholders benefiting from lower premiums, insurance agents facing income squeezes, and industry stakeholders in India’s $118 trillion insurance market (FY25), these cuts highlight the ripple effects of GST reforms. While insurers like New India Assurance and SBI General have pledged to absorb some costs, the changes could reshape distribution dynamics, pushing digital channels and partnerships. Let’s unpack the rationale, affected companies, and broader implications.
Rationale: GST Cuts and Lost ITC Squeeze Margins
The GST reduction on health policies—announced in the 2025 Budget—eliminates the 18% levy on individual premiums but strips insurers of ITC claims on GST paid for inputs like agent commissions (18% GST), office rent, IT systems, and reinsurance. Previously, insurers collected GST from customers and offset it against these credits; now, the full burden falls on them, inflating expenses by 3-8% without revenue offsets.
Key drivers:
- Expense Rationalization: Commissions, a major outgo (20-35% of premiums), are the easiest target; total health premiums in FY25 were ₹1.18 trillion, with retail at ₹472.92 billion.
- Regulatory Pressure: IRDAI mandates passing “maximum benefit” to consumers, limiting premium hikes.
- Competitive Landscape: With 57% of retail health premiums from standalone insurers, cost controls ensure viability amid 15% sector CAGR.
Insurers like Aditya Birla Health have explicitly stated: “GST on commissions, rewards, and equivalents shall be borne by distributors effective October 1, 2025.”
Affected Companies and Commission Adjustments
Multiple non-life players have communicated cuts, focusing on retail health and general lines. While exact percentages vary, the net effect is a 3-8% reduction post-GST inclusion.
Overview of impacted firms:
| Company | Commission Change | Effective Date | Notes |
|---|---|---|---|
| ICICI Lombard | Inclusive of GST; 3-5% net cut | Oct 1, 2025 | Applies to fresh/renewal business; digital push emphasized. |
| Care Health | GST-inclusive rates; ~4% reduction | Oct 1, 2025 | Notified partners; focuses on retail health (₹27,254 Cr FY25 share). |
| Aditya Birla Health | GST on commissions borne by distributors; 5-8% cut | Oct 1, 2025 | Explicit email to partners; affects rewards and equivalents. |
| Others (e.g., SBI General) | Under review; potential 3% trim | Oct 1, 2025 | Pledged full GST pass-through to policyholders. |
Life insurers like LIC have separately cut first-year commissions to 20-28% from 35% effective October 1, 2024, but non-life focuses on GST impacts. Agents’ federations like All India LIAFI are protesting, demanding reversal.
Implications: Agent Squeeze, Digital Shift, and Policyholder Wins
For agents and distributors, the cuts erode earnings—commissions already capped at 35% first-year—potentially leading to protests or policy surrenders, as seen with LIC’s 7% trim sparking backlash. Policyholders gain from nil GST (saving ₹3,600 on ₹20,000 premium), with base premiums dropping to ₹16,950 from ₹20,000. Insurers absorb 3-8% costs but sustain 15% growth via digital sales (up 25% YoY).
Broader effects:
- Distribution Evolution: Accelerates bancassurance and online channels; agents may pivot to advisory roles.
- Sector Growth: Health insurance at ₹1.18 trillion FY25; reforms could add 10-15% penetration.
- Regulatory Outlook: IRDAI’s master circular (2024) caps expenses at 35%; further tweaks expected.
Challenges: Rising operational costs (rent, tech) may pressure margins, but GST pass-through boosts volumes.
Conclusion: Commission Cuts – A GST Reform Reckoning
Insurance companies’ commission cuts from October 1, 2025—3-8% net reduction post-GST nil on premiums—offset lost ITC while benefiting policyholders with lower costs. As ICICI Lombard, Care Health, and Aditya Birla lead, the sector navigates growth pains toward digital efficiency. For agents, it’s a squeeze; for consumers, a win—watch for IRDAI’s response to protests. mint
