GST Reform: Health Insurance Commissions May Be Cut, Customers Likely to Benefit from Lower Costs

The Insurance Regulatory and Development Authority of India (IRDAI) is reportedly working on a major reform in the health insurance sector that could directly benefit customers. According to exclusive information shared by CNBC-TV18, IRDAI has asked insurance companies to reduce the high commissions paid to agents, banks, and aggregators, which currently add to the cost of policies. The move is expected to make health insurance more affordable by passing on the benefits of GST savings directly to customers.

Commission Cuts on the Horizon

Industry sources suggest that private health and general insurance companies may soon reduce commissions by 5–8%. This reduction is likely to apply across channels—agents, aggregators, and banks—who play a key role in distributing insurance policies.

The reform is being considered because insurers do not currently enjoy input tax credit (ITC) benefits under GST, which makes commissions an additional burden. By reducing these payouts, companies plan to transfer the savings to customers, lowering the effective premium rates.

IRDAI’s Push for Greater Transparency

This move follows IRDAI’s recent consultations with CEOs of insurance companies, where the regulator expressed concern over excessively high commissions in the sector. The regulator has urged insurers to adopt a model similar to the Total Expense Ratio (TER) used in mutual funds, which caps distribution and management expenses.

By capping commissions, IRDAI aims to bring more transparency and fairness into the health insurance pricing structure. Customers would be able to see how much of their premium is going toward commissions, just as mutual fund investors can see the TER charged on their investments.

Possible Adoption of the Mutual Fund TER Model

The regulator has reportedly asked insurance companies to prepare a presentation on implementing the TER model in the insurance sector. If approved, this could significantly change how policies are priced and sold in India.

Under such a model, insurers would have to clearly disclose commissions within the policy structure, ensuring that customers are fully aware of distribution costs. This step is aimed at improving trust and preventing policy mis-selling, a concern that has troubled the insurance industry for years.

Benefits for Policyholders

If implemented, the reform could bring several advantages for policyholders:

• Lower Premiums: Reduced commissions mean customers will directly benefit from lower costs.

• More Transparency: Customers will know exactly what portion of their premium goes toward commissions.

• Fairer Competition: Insurers will be forced to compete on the basis of product quality and service rather than agent payouts.

• Customer-Centric Pricing: With GST savings and commission cuts, insurers can pass maximum benefits to end-users.

IRDAI May Form a Committee

To ensure smooth implementation, IRDAI is also considering forming a committee to study and recommend commission reduction measures. The committee may also look into global best practices and suggest a phased transition so that agents and distributors are not abruptly affected.

A Step Towards Affordable Health Insurance

India’s health insurance sector has seen rapid growth in recent years, driven by rising medical costs and increasing awareness. However, high commissions and complex pricing structures have often led to higher premiums for customers.

With GST-related reforms and a possible shift to the TER-based model, health insurance in India could become more transparent, cost-effective, and customer-friendly.

Industry experts believe that while commission cuts may initially face resistance from intermediaries, the long-term benefits for consumers will strengthen trust in the insurance system and boost policy adoption rates.

Conclusion

The proposed GST-linked commission reform in health insurance marks a potential turning point for the sector. By aligning with the mutual fund TER model, IRDAI hopes to reduce hidden costs, improve transparency, and pass savings directly to customers.

If implemented, this move could make health insurance policies more affordable and accessible, ensuring that millions of Indians benefit from better financial protection without paying unnecessary extra costs.