Parliamentary Panel Urges IRDAI to Accelerate Risk-Based Capital Framework and Rationalize GST on Insurance

The Parliamentary Committee on Public Undertakings (CoPU) has raised concerns regarding the declining market share of public sector insurers in India. In a report tabled on August 6, the Committee urged the Insurance Regulatory and Development Authority of India (IRDAI) to accelerate the implementation of the Risk-Based Capital (RBC) framework. It also recommended a review of the Goods and Services Tax (GST) on insurance products, which currently stands at 18%, asserting that this high rate hampers affordability and overall insurance penetration in the country. The report emphasizes the need for significant improvements in insurance reach to meet the ambitious goal of “Insurance for All by 2047,” especially given India’s current insurance penetration is well below the global average.

This development has serious implications for the common citizen and the broader financial market. A lower market share for public sector insurers means reduced competition and potentially higher premiums for consumers. The CoPU’s recommendations could lead to a more favorable taxation environment for insurance products, thereby increasing affordability and encouraging greater participation in the insurance market. Specifically, the call to enhance digital transformation within insurers points towards a future where claims processing and service delivery could improve significantly, benefiting policyholders by reducing turnaround times and enhancing customer service through technology.

Looking ahead, the government and IRDAI will need to act on the recommendations laid out by the committee to enhance the financial stability and competitiveness of public sector insurers. Establishing time-bound annual targets for improving both life and non-life insurance penetration is critical to bolster the sector’s health. Additionally, the implementation of the RBC framework will not only improve the resilience of these insurers but will also protect policyholders more effectively. The focus on internal reforms before considering government capital infusions highlights a strategic approach to strengthening the sector’s fundamentals, ensuring sustainable growth in alignment with national objectives.

Source: The Hindu

(Expert Note: This report was independently prepared by the Wealthova Economy team.)