Insurers rethink commissions as input tax credit changes bite
Some private life insurers are reassessing how they pay commissions after a change that reduced their ability to claim input tax credits (ITC) on certain costs. The move is a response to higher effective costs of distribution, and companies are exploring ways to protect margins — including trimming or restructuring commission payouts to agents and brokers.
What’s driving the shift?
Input tax credit allows businesses to offset the tax they pay on inputs against their tax liability. When that benefit is reduced or removed, distribution expenses such as commissions and other intermediated costs become more expensive. For insurers operating on thin margins, that can prompt a rethink of where the extra cost should land: with the company, the intermediary, or the customer.
LIC says customers won’t pay more
In contrast to some private players, the state-owned life insurer has taken a clearer line: it will pass the full benefit to customers through premiums and will not transfer any extra GST burden onto intermediaries. That means LIC plans to absorb the GST impact rather than reduce agent commissions or raise product prices.
Implications for customers and intermediaries
- Customers: If insurers raise premiums to recoup lost ITC, customers face higher costs. LIC’s stance suggests some consumers may avoid price increases if other large players follow suit.
- Intermediaries: Agents and brokers could face lower commissions if insurers choose to cut payouts instead of absorbing the tax hit.
- Competition: Insurers that maintain commissions and hold premiums steady may gain a distribution advantage, while those passing costs to intermediaries could see channel friction.
What to watch next
Keep an eye on how major insurers adjust their product pricing and commission policies in the coming weeks. Regulatory guidance or market pressure could push firms toward consistent approaches, but for now the industry may see a mix of strategies — from absorbing costs to recalibrating distribution economics.