GST Exemption: A Double-Edged Sword for Insurance Brokers Impacting Their Earnings

Understanding the Impact of GST Changes on Insurance Brokers

The recent removal of the Goods and Services Tax (GST) on insurance policies has had unintended consequences for the insurance intermediary community. While this exemption is hailed for making insurance more affordable for policyholders, it has raised substantial concerns regarding the viability of insurance brokers and agents across the country. Private insurers like Niva Bupa, Care Health, and ICICI Lombard have slashed commissions by 15-18% since October 1, 2025, aiming to offset the increased operational costs due to the loss of input tax credit (ITC), leaving many intermediaries feeling financially strained.

What is Input Tax Credit and Why is it Important?

The input tax credit allowed insurers to claim back some of the GST they paid on business expenditures, including commissions and administrative costs. With the government’s latest move to exempt insurance policies from GST, these companies can no longer avail themselves of ITC. As a direct consequence, the operational costs of these insurance firms have surged by approximately 2-3% on premiums. Consequently, insurers chose to pass on the financial burden to agents, many of whom are small, independent operators.

The Unanticipated Consequences for Insurance Agents

In reducing commissions, insurers have triggered a domino effect that threatens the stability of insurance distribution networks. The General Insurance Agents Federation Integrated (GIAFI) has expressed serious concerns about the sustainability of many small businesses within the industry. Prashant Mhatre, the president of GIAFI, emphasized that the reduction in commissions undermines the role of agents and brokers, central to reaching underserved markets in rural and small-town areas. As motivation wanes due to diminishing earnings, the overall access to insurance may also decline, contravening national goals for widespread insurance coverage by 2047.

The Reaction from the Insurance Community

Insurance agents and industry bodies are rallying to find solutions, calling on the Insurance Regulatory and Development Authority of India (IRDAI) and the Finance Ministry to address these pressing challenges. The IBAI's recent meeting with Finance Minister Nirmala Sitharaman did not touch on commission reductions, leaving many agents feeling unheard. This exclusion highlights an urgent need for better dialogue between insurance regulators and intermediaries, ensuring that policies balance benefits to consumers with fairness for brokers.

Future Implications and Industry Trends

As more players in the private sector contemplate similar commission cuts, the insurance distribution landscape is likely to undergo significant changes. Agents across the board might have to unite to voice their concerns more effectively. If reductions are common practice, it might not only affect individual agencies but could stifle overall insurance market growth, particularly in areas that depend heavily on local agents for access to necessary insurance products.

Seeking Viability in New Business Models

The current situation presents an opportunity for brokers to re-evaluate their business models and consider diversifying their services. By focusing on value-added services—such as providing financial education, risk assessment, and personalized advice—agents could reposition themselves as indispensable partners to consumers navigating their insurance needs. Additionally, leveraging technology could provide more accessible avenues for service delivery, optimizing operational efficiency and creating new revenue streams.

Conclusion: Call for Solidarity and Action

The insurance industry's complexities necessitate a united front among agents and brokers to voice concerns and promote equitable solutions. While the GST exemption was intended to benefit consumers, it has inadvertently challenged the financial stability of many who facilitate insurance access. It is vital for brokers to organize, advocate for their interests, and explore innovative approaches to sustain their operations during these transformative times.

If you are involved in the insurance sector or rely on it for elderly support services, it's crucial to stay informed and engaged. Consider joining local advocacy groups or forums focused on empowering insurance professionals and ensuring a sustainable future for all involved. Your voice matters!