When the government announced a 0% GST on retail health insurance premiums on September 22, it was welcomed as a move that would make protection more affordable. But in the weeks since, it has come to represent something far more significant.

The reform has not only reduced the cost of buying health insurance but has also reshaped how Indians think about coverage itself. For the first time, the focus is shifting from “how much premium do I pay” to “how much protection do I have.” The early signs of this behavioural shift are unmistakable. Following the GST waiver, demand for high-value health insurance plans has jumped sharply. At Policybazaar, we have seen a 38% increase in purchases of policies with higher sum insureds, with the ₹15-25 lakh range now dominating new sales. The average cover size has risen from ₹13 lakh to ₹18 lakh in a short span. This points to a deeper change in how people are approaching financial preparedness in the face of medical inflation.

The removal of GST has made health insurance premiums about 18% cheaper for individual buyers. Yet what is truly encouraging is how customers are responding. Instead of merely pocketing the savings, many are using it to upgrade to more comprehensive plans. This reflects a growing understanding that health insurance is not a cost to be minimised but a financial safeguard to be strengthened.

The pandemic played a big role in shaping this awareness. It exposed the real scale of medical costs and how quickly hospitalisation expenses can erode savings. The GST exemption seems to have built on that awareness, giving families the final nudge to secure policies that truly match their healthcare needs.

Awareness deepens

Interestingly, the appetite for better protection is no longer confined to metropolitan India. Smaller cities and towns are showing a sharp rise in the adoption of higher-value covers.

In Tier 2 markets, there has been a noticeable shift away from low-sum insured plans, with more customers now choosing policies that offer ₹15–25 lakh in coverage.

This is an important cultural moment in India’s insurance journey. For years, non-metro consumers have tended to prioritise affordability over adequacy, but that equation is changing. With rising awareness and easier access to digital platforms, families are opting to secure higher coverage earlier in life. The zero-GST move has given this shift a tangible push, removing one of the key barriers to entry.

What is heartening to see is that this surge is cutting across age groups. Millennials and mid-life earners are leading the upgrade trend, investing in plans that can protect them from lifestyle-related illnesses and unforeseen medical emergencies.

But even among senior citizens, there is a visible change in mindset.

More customers in their sixties and seventies are choosing comprehensive covers instead of limited ones, recognising that long-term financial independence depends as much on health security as on income.

This growing alignment across generations is a strong indicator of how the insurance mindset in India is maturing. Younger buyers are planning early, while older ones are ensuring they are not left vulnerable. Both are making informed choices rather than reactive ones.

Alongside the move toward larger covers, we are also seeing a rise in the adoption of add-ons and long-term plans. Riders such as Day-1 Pre-existing Disease and critical illness cover are gaining traction, as buyers increasingly prefer policies that provide immediate and comprehensive protection. Similarly, more customers are opting for multi-year policies.

These trends together suggest a clear shift from transactional buying to thoughtful financial decision-making.

The zero-GST reform has, in effect, unlocked the value perception of health insurance. By making it more affordable, it has also made it more aspirational, a product people now want to invest more meaningfully in.

The government’s move to exempt health insurance from GST may have started as a fiscal reform, but its true impact is behavioural. It has widened the accessibility of health coverage and encouraged a national rethink on what adequate protection means.

The GST reform has helped add something far more enduring, trust, awareness, and a willingness to plan for health proactively.

(The writer is Head, Health Insurance, Policybazaar)

Among the many moving parts of a hospitalisation insurance policy is a key intermediary — the Third Party Administrator (Health Services), or TPA.

TPAs handle claims management on behalf of insurers. Earlier, such work was done by the claims departments of the insurance companies, well-versed in the specific requirements of fire, marine, health or motor insurance. The idea of outsourcing health claims emerged when the Insurance Regulatory and Development Authority (IRDA, as it was then known) issued regulations in 2001 allowing TPAs to operate.

These TPAs were meant to serve as a bridge between insurers, hospitals and policyholders — helping customers with documentation, processing claims under the insurer’s rules, and settling hospital bills directly under the “cashless” system so that the insured didn’t have to pay upfront and wait for reimbursement.

Early troubles

In the beginning, TPAs took time to come to grips with both insurance and healthcare processes. Customers complained of arbitrary claim reductions or outright rejections. Then came the “float” problem: insurers advanced funds to TPAs for approved claims, but some TPAs delayed payments to hospitals to earn interest on the idle funds. This led to disputes and tighter regulation.

Meanwhile, hospitals realised that the insurance system — despite its paperwork — brought in paying customers. Even government hospitals began preferring insured patients as a source of income rather than free service.

The cashless crunch

As medical costs soared, insurers created closed networks of hospitals with negotiated package rates to contain pricing discrepancies. But this arrangement often left the policyholder stranded — hospitals charged one rate, insurers reimbursed another, and the patient quietly bore the difference.

Eventually, hospitals began protesting too, citing delays in updating tariff agreements and in receiving claim payments from TPAs. Many took to demanding full advance payment from patients to be reimbursed when the insurer/TPA pays out the claim, subverting the very concept of cashless treatment!

In recent months tensions have escalated, with insurers and hospitals blacklisting each other and patients caught helplessly in between. As it is, hospitalisation insurance has been topping the list of general insurance complaints before Insurance Ombudsmen for decades now.

What needs fixing

India’s healthcare operates in a liberalised, market-driven environment — but the absence of price discipline and uniformity is hurting everyone. A measure of standardisation in hospital tariffs, albeit factoring in differences in facilities and location, is essential. Market segmentation is fine; unregulated pricing is not.

Expanding and upgrading the network of public, community and charitable hospitals can ease the burden on both private healthcare and the customer’s wallet. Quality must be benchmarked, monitored and rewarded. The NABH accreditation system has created a base level of quality for hospitals. A similar grading system for TPAs — importantly incorporating customer ratings — would introduce much-needed transparency and accountability. Come to think of it, independent customer ratings for hospitals on a range of factors from pricing to standards to service quality would be very useful too.

Ultimately, while the insurer–TPA relationship may be contractual, the real test is service to the insured. The customer, after all, is not just the policyholder — but the patient.

(The writer is a business journalist specialising in insurance & corporate history)

Terming the GST Council’s decision to exempt insurance premium from the indirect tax as a landmark move, insurers said this will help make products more affordable and expand insurance penetration.

GST Council meeting highlights on September 4, 2025

Announcing the outcome of 56th GST Council meeting, Finance Minister Nirmala Sitharaman on Wednesday (September 3, 2025) said all individual life insurance policies whether term life, ULIP or endowment policies and subsequent reinsurance are exempt from GST.

All individual health insurance policies, including family floater policies and policies for senior citizens and reinsurance thereof, will also be exempt from GST, she said.

Since its inception in July 2017, GST at the rate of 18% is levied on premium paid towards health insurance and life insurance.

Commenting on the GST Council decision, LIC CEO & MD R. Doraiswamy termed the rate rationalisation as “visionary initiative”.

Removal of GST on individual life insurance products, a step towards making life insurance more affordable to all citizens of the country to meet the objective of insurance for all by 2047, Mr. Doraiswamy said.

Sharing his thought Ashok P. Hinduja, chairman, Hinduja Group of Companies (India) said steps like removing GST on life and health insurances will prove to be revolutionary in this regard.

At a time when medical inflation is rising steeply, this step directly benefits citizens and eases the financial burden on families, Bajaj Allianz General Insurance MD & CEO Tapan Singhel said.

This progressive decision will accelerate insurance penetration and strengthen the nation’s health security, he said.

Echoing similar views, HDFC ERGO General Insurance executive director & CFO Samir Shah said from a consumer standpoint, the immediate benefit is that it directly translates to enhanced affordability.

However, he said, “We are closely analysing the implications concerning the input tax credit. While it is anticipated that there will be lowering of the premiums due to lowering of the taxes, we are yet to understand the extent of this reduction as this will also depend upon availability of the input tax credit, which will become clearer over the coming days.”

Commenting on the decision, IFFCO TOKIO General Insurance MD & CEO Subrata Mondal said the removal of GST is expected to significantly enhance the affordability of health insurance, thereby improving penetration across diverse population segments.

Reduced premium costs will likely incentivise more individuals and families to purchase or upgrade their health insurance coverage, strengthening financial resilience against medical expenses and easing out-of-pocket burdens, Mr. Mondal added.

ManipalCigna Health Insurance MD & CEO Joydeep Saha this much-awaited reform will help millions of households safeguard themselves against unforeseen medical expenses without worrying about affordability at a time when medical costs and healthcare inflation are on the rise.

The reform will not only benefit existing customers but also empower more families to opt for health insurance coverage, Mr. Saha added.

Insurance Brokers’ Association of India (IBAI) president Narendra Bharindwal said the exemption of GST on all individual life insurance policies, whether term life, ULIPs, or endowment and on individual health insurance policies, including family floater and senior citizen plans, marks a historic step towards universal insurance inclusion.

Aalesh Avlani, co-founder, Credit Wise Capital, this reform will further accelerate the shift towards digital-first, hassle-free financing solutions, empowering more consumers to fulfil their aspiration of owning a two-wheeler.

Insurance stocks were in heavy demand on Thursday (September 4, 2025), with Star Health surging over 9%, as life insurance and health insurance premia would come down as such products are now exempt from goods and services tax (GST).

Announcing the outcome of 56th GST Council meeting, Finance Minister Nirmala Sitharaman on Wednesday (September 3, 2025) said all individual life insurance policies, whether term life, ULIP or endowment policies and subsequent reinsurance are exempt from GST.

Shares of Star Health and Allied Insurance Company skyrocketed 9.35%, Niva Bupa Health Insurance Company zoomed 9%, ICICI Prudential Life Insurance Company jumped 5.70%, ICICI Lombard General Insurance Company rallied 5%, Life Insurance Corporation of India climbed 5%, HDFC Life Insurance Company went up 4.90% and SBI Life Insurance Company surged 4.88% on the BSE.

“While the direct beneficiaries include consumer, auto, cement, healthcare and insurance sectors, the second order beneficiaries in terms of growth will be retail banks & NBFCs,” Rahul Singh, CIO-Equities, Tata Asset Management, said.

All individual health insurance policies, including family floater policies and policies for senior citizens and reinsurance thereof will also be exempt from GST, she said.

Since its inception in July 2017, GST at the rate of 18% is levied on premium paid towards health insurance and life insurance.

“We will make sure that companies pass on GST rate reduction and make insurance affordable for the common man and increase the insurance coverage in the country,” she said.

She further said the new rates would be effective from September 22, the first day of Navratri.

“Some of the key sectors that stand to benefit from this are insurance, FMCG, automobiles, agriculture equipment, cement, consumer durables, apparel, footwear, QSR, and retail,” Pranav Haridasan, MD and CEO, Axis Securities, said.