The Government of India introduced GST, or Goods and Services Tax, in 2017. It was the biggest tax reform in India since the year we got independence. This tax regime segregated the tax rates in five slabs, 0%, 5%, 12%, 18% and 28%. Consequently, GST on two–wheeler insurance is 18%. This is a 3% increase from the pre–GST tax rate of 15% on insurance policies. As a result, insurance covers are relatively more expensive now. Apart from motor insurance, GST has increased the cost of various other general health insurances, such as health insurance, travel insurance, home insurance, etc.

Though there is a 3% increase in the cost of procuring a two–wheeler insurance policy, the price rise is only marginal. To help you understand, here is an example: Suppose you bought a bike insurance policy in 2016 that charged a monthly premium of Rs. 1500. If you paid 15% GST, your total cost of procuring the bike insurance would be Rs. 1725.

Alternatively, if you had bought a bike insurance policy in 2018 that charged the same monthly premium by applying an 18% tax rate, the total cost of buying your two–wheeler insurance now would be Rs. 1770.

As you can see, there is only a difference of Rs. 45 between the insurance policies bought before and after the introduction of GST on bike insurance. Hence, the GST tax regime does not affect the two–wheeler market in a significant way for the customers.

The marginal increase in the cost of insurance policies after the introduction of GST has provided enough space for insurers to price their products more competitively. As a result, the insurance market players are now compelled to offer insurance products that are more affordable and come with more benefits when compared to their competitors.

Many insurers have shifted from the commission business model to a Direct to Customer (D2C) business model to capture more of the insurance market. By selling insurance directly to the customer, the insurers reduce their working expenditure and hence get a more considerable margin to either sell their products at a lower price or provide more benefits by keeping the cost constant.

Even though the introduction of GST has increased the cost of procuring a two-wheeler insurance policy, there are several benefits that the customers can enjoy due to this tax regime, such as:

• More options to choose from

  As an increasing number of insurance companies alter their offerings to beat the competition, the customer enjoys a wider variety of options to choose from.

• Better insurance benefits

  To cope with the increase in the cost of buying insurance plans, many insurance companies have started to offer more benefits to their customers.

• No need to pay unnecessary commissions

  The higher tax rate has compelled insurers to cut down their operational costs to match their competitors’ pricing. Hence, by shifting to a D2C business model, they have removed the need for you to pay any unnecessary commission to third–party agents.