The recent changes to the goods and services tax (GST) rate on insurance have put Niva Bupa Health Insurance Co. Ltd in a difficult position. The company must decide whether to remain competitive by not raising premiums, thereby sacrificing profit margin, or to become uncompetitive by raising premiums and protecting its profit margin. This dilemma arises because individual health insurance is exempt from GST, but other types of insurance, such as vehicle insurance, are still taxable.
Standalone health insurance companies, like Niva Bupa and Star Health, are particularly affected by the GST changes. These companies cannot fully utilize the input tax credit (ITC) for GST paid on expenses, as they only collect GST on premiums from group health insurance policies. Niva Bupa’s gross premium income is ₹6,762 crore, compared to Star Health’s ₹16,781 crore. However, Niva Bupa’s higher expenses of management (EoM) ratio and re-insurance ceded ratio mean that it pays more GST on these expenses, making its ITC higher.
According to Kotak Institutional Equities, Niva Bupa’s disallowed ITC is estimated to be ₹193 crore, compared to Star Health’s ₹156 crore. This means that Niva Bupa’s profit margin will suffer more if it does not increase its base premium prices. Kotak estimates that Niva Bupa will need a price hike of 4.4% in base insurance premiums, compared to just 1% for Star Health.
The abolition of GST on individual health insurance may lead to increased demand for these policies, which had slowed down in FY25. However, the impact on profitability varies significantly between companies. Investors should wait and see how Niva Bupa responds to these changes before making any investment decisions. The company’s ability to balance competitiveness with profit margin protection will be crucial in determining its future success. Ultimately, Niva Bupa’s response to the GST changes will have a significant impact on its profitability and competitiveness in the health insurance market.