Insurance Industry Brief - September-October 2025

Insurance Industry Brief: Analysis for Q3-Q4 2025

Date of Analysis: October 12, 2025

1. EXECUTIVE SUMMARY

The Indian insurance sector is at a pivotal juncture, marked by the landmark launch of the Bima Sugam digital platform, which promises to revolutionize distribution. Concurrently, a significant regulatory change eliminating Input Tax Credit (ITC) on GST for commissions is placing immediate financial pressure on life and health insurers. While the health insurance segment shows robust consumer confidence with record-high policy persistency, ongoing friction between hospitals and insurers over billing practices continues to be a key operational challenge.

2. KEY DEVELOPMENTS

• Technology Adoption (InsurTech, AI, digital transformation): The most significant development is the launch of Bima Sugam by IRDAI Chairman Ajay Seth. This online platform is designed to be a one-stop-shop for all insurance needs—from policy purchase to claims settlement—aiming to increase transparency, accessibility, and efficiency across the market.
• Regulatory Updates and Compliance Changes: The Central Board of Indirect Taxes and Customs (CBIC) has ruled that insurers cannot claim Input Tax Credit (ITC) on the GST paid on commissions and brokerages for individual health and life policies, effective September 22, 2025. This is a major financial change impacting insurer cost structures.
• Market Expansion or Strategic Partnerships: The General Insurance Council (GIC) and the Association of Healthcare Providers (AHPI) have initiated a strategic dialogue. The collaboration aims to standardize hospital billing, streamline the empanelment process, and improve patient care, addressing long-standing operational conflicts between the two industries.
• New Product Launches or Coverage Changes: The market is seeing a trend towards modular health insurance plans. The high persistency report from Policybazaar suggests that customizable and flexible product offerings are resonating with consumers and driving renewals.

3. MARKET ANALYSIS

• Consumer Behavior Shifts: Health insurance is demonstrating strong consumer loyalty, with policy renewals (persistency) reaching an all-time high in FY26. This indicates a growing awareness of the value of health coverage and satisfaction with current product offerings, particularly flexible plans.
• Premium Trends and Pricing Changes: The removal of the ITC benefit on GST for commissions will directly increase the tax burden on insurers. This will likely exert upward pressure on premiums for individual life and health policies as insurers look to offset the increased operational costs.
• Claims Patterns or Loss Ratios: The probe into the crop insurance scam in Karnataka under the Pradhan Mantri Fasal Bima Yojana (PMFBY) highlights significant fraud risk and operational vulnerabilities in the agricultural insurance segment. This could lead to higher loss ratios and increased scrutiny on claims processing for agri-insurers.
• Competitive Landscape Changes: The launch of Bima Sugam is set to drastically alter the competitive landscape. It will empower consumers with greater price and feature transparency, potentially commoditizing standard products and forcing insurers to compete more on service, price, and innovation. It also levels the playing field for smaller insurers to reach a wider audience.

4. REGULATORY & COMPLIANCE UPDATES

• New Regulations or Policy Changes:
  • GST on Commissions: The CBIC’s decision to disallow ITC on GST paid on commissions for individual policies is a binding financial regulation that insurers must immediately comply with.
  • Healthcare Standardization: A new circular from the National Medical Commission (NMC) is aimed at mediating the hospital-insurer conflict by potentially introducing guidelines on Standard Treatment Workflows (STWs) and hospital rate transparency.
• Compliance Requirements: Insurers must immediately adjust their tax accounting and financial models to absorb the impact of the lost ITC. This involves changes in financial reporting and potentially restructuring agent commission agreements.
• Government Initiatives Affecting Insurance:
  • Bima Sugam: An IRDAI-led initiative to digitize and democratize insurance access for all citizens.
  • PMFBY: The government’s flagship crop insurance scheme is under scrutiny due to fraud allegations, which may lead to stricter oversight and audit requirements for participating insurers.

5. BUSINESS IMPACT ASSESSMENT

• Which insurance segments are most affected:
  • Health and Life Insurance: Most directly impacted by the GST/ITC rule change, leading to margin compression.
  • General Insurance: Affected by the push for standardized healthcare billing and the broader lobbying effort for GST relief.
  • Agricultural Insurance: Facing reputational damage and financial risk from fraud, requiring enhanced due diligence.
• Opportunities and Challenges Identified:
  • Opportunities: Bima Sugam presents a massive opportunity for insurers to reduce distribution costs and expand market reach. The high persistency in health insurance signals a stable and growing revenue stream. Successful standardization with hospitals could significantly reduce claims processing costs and friction.
  • Challenges: The immediate challenge is managing the financial fallout from the ITC rule change. Insurers must also navigate the integration with Bima Sugam and differentiate themselves in a more transparent market. Fraud prevention in rural and agricultural schemes remains a critical challenge.
• Strategic Implications for Insurers: Insurers must urgently re-evaluate their pricing and commission structures. A robust digital strategy to leverage Bima Sugam is no longer optional but essential for survival and growth. Investment in fraud analytics, particularly for government-sponsored schemes, is critical to protect the bottom line.

6. KEY PLAYERS & ENTITIES

• Regulators and Government Bodies:
  • Insurance Regulatory and Development Authority of India (IRDAI)
  • GST Council & Central Board of Indirect Taxes and Customs (CBIC)
  • National Medical Commission (NMC)
  • Union Health Ministry
  • Finance Ministry
• Insurance Companies & Industry Bodies:
  • General Insurance Council (GIC)
  • General Insurers (as a group)
• Partners & Intermediaries:
  • Association of Healthcare Providers (AHPI)
  • Policybazaar
• Key Platforms & Schemes:
  • Bima Sugam
  • Pradhan Mantri Fasal Bima Yojana (PMFBY)

7. FORWARD OUTLOOK

• Emerging Trends to Watch:
  1. Platformization of Insurance: The success and adoption rate of Bima Sugam will be the single most important trend to monitor, as it will redefine insurance distribution in India.
  2. Cost Optimization Pressure: Expect insurers to aggressively pursue operational efficiencies and digital transformation to counteract the impact of new tax burdens.
  3. Provider-Payer Convergence: The GIC-AHPI dialogue and NMC’s intervention signal a serious push towards standardized healthcare protocols and pricing, which could reshape health insurance underwriting and claims management.
• Potential Market Implications: We anticipate a period of margin pressure, potentially leading to market consolidation. Insurers with superior technology and customer service will gain a significant advantage in the Bima Sugam era. Regulatory activism is likely to continue, especially in health and crop insurance.
• Recommended Areas of Focus: Insurers should prioritize (1) developing a clear strategy for Bima Sugam integration, (2) lobbying for GST relief while modeling new pricing structures, and (3) investing in technology for claims automation and fraud detection to improve efficiency and reduce losses.