Record auto sales following the GST rate cut have brightened prospects for higher motor insurance premiums. Cholamandalam MS General Insurance Managing Director V Suryanarayanan tells Narayanan V how the rate rationalisation will impact motor and health insurance premiums and the role of Bima Sugam in insurance distribution. Excerpts:
Will higher vehicle sales drive motor insurance premiums?
That is the industry-wide expectation. From what we have seen on Day 1 (of the GST rate cut), things look bullish. The government announced the rate cut on September 3 and implemented it from September 22. Many buyers had held back their purchases, so there is also some pent-up demand. The next few days will show whether the growth is broad-based or just seasonal. From a general insurance industry perspective, the motor third-party (TP) segment is critical, as it accounts for nearly 55% of the industry’s motor premium. This share will continue to rise each year because the vehicle base keeps expanding.
As vehicles age, the own damage (OD) portion of the cover comes down, but TP remains unchanged since it’s age-agnostic. Therefore, any tweak in the TP pricing will significantly impact industry growth. Another key issue is the large number of uninsured vehicles. Roughly 50% of two-wheelers in India are uninsured; in the case of tractors, it’s over 85%, and for commercial vehicles, it is over 20%. If even 20% of these uninsured vehicles were brought under cover, the industry could see a 20–25% rise in motor premiums.
Is the industry passing on GST benefits to policyholders?
I don’t think any insurer has raised premiums to deny the benefit that the government has extended to citizens. The government made a clear appeal, and the regulator also advised us not to consider any rate increase. Both are aware of the input tax credit (ITC) impact the industry is taking, and their guidance has been to keep rates steady for now. At this stage, the industry is only assessing the impact in broad ranges. Over time, we will get a clearer picture of the actual effect and the extent to which higher volumes compensate for it. Based on that, the industry may take a call in the future. This is also the approach the regulator expects us to follow, and the industry is committed to looking at the issue in that fashion.
What kind of health insurance policies will see a surge after GST rate cut?
The regulator introduced a policy called Arogya Sanjeevani, which is a no-frills cover for the masses. It’s a standard policy with wordings prescribed by the regulator, and only the pricing is left to individual insurers. Such products are likely to get a fillip. It all depends on the segment of the population one wants to tap. If you’re targeting the mass segment, that product continues to hold value. In our case, the profile has been more on the individual health benefit side, rather than indemnity.
In the individual health segment, some of our products are popular and priced quite attractively. We do good business in Arogya Sanjeevani. We also run group health indemnity products through our bancassurance tie-ups, which, as per the government’s clarification, will continue to attract GST since they fall under the group construct. We do considerable volume in this segment.
How will the Bima Sugam portal reshape insurance distribution?
We were told that first products under Bima Sugam will roll out in a few months. The key advantage is its link to the government’s digital public stack, which will make transactions easier and convenient for customers. Today, for instance, buying a policy often requires a variety of identity documents, including CKYC. On this platform, it could become simpler because of its inherent access to the public digital stack. Your ability to transact becomes seamless, which is a significant operational convenience.
Initially, if one chooses standard products where understanding the cover isn’t complex, the process becomes even easier. Products like Arogya Sanjeevani, which are Irdai-prescribed with minimal variation except for price, could become more popular. It may also help reduce mis-selling in such products, which is an immediate advantage. There have been private platforms that helped with price discovery for customers. Bima Sugam will be another platform, but potentially more digitally equipped due to its government linkages.