India is witnessing a rise in insurance penetration and it is poised to grow rapidly driven by awareness and emerging challenges in the context of an individual’s life including health and financial security of dependents.
Post COVID-19, there has been an increased awareness about the need for health and life insurance.
Consultancy firm Redseer in a report released last year said that the market size will reach $222 billion by FY26 as a result of growing middle class and increasing digital penetration.
According to the data available on the official website of Invest India, the Indian insurance market is worth $131 billion as of FY22. The industry has grown at a CAGR of 17% over the past two decades. India Ranked 11th in the global insurance business.
As the Union Budget 2023 will capture various sectors of the economy, insurance experts also want some measures to focus on the industry.
Experts believe that reduction in GST on health insurance products, cap on deduction under various sections of income tax are some of the demands that will make the products affordable and boost insurance adoption in the country.
Krishnan Ramachandran, MD & CEO, Niva Bupa Health Insurance, said, “Due to rising medical inflation, many insurance companies have increased the premium on health insurance products this year. In order to bring down the premium cost and make health insurance purchases more affordable for policy buyers, insurers are requesting the government to reduce the current 18% GST rate on health insurance products.”
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The government should consider reducing the current GST rate on health insurance. This will increase the penetration of health insurance plans by making them more affordable. Subsequently, increasing the limit for claiming tax deduction under section 80D will increase affordability and encourage more people to opt for health insurance for their families and elderly parents.
The experience of the Covid pandemic and rising hospitalization costs are prompting people to consider health insurance plans with higher sum assured that provide comprehensive coverage against all diseases. “The increase in limit under section 80D will encourage them to choose a health insurance plan with adequate sum assured to safeguard the health of their loved ones,” Ramachandran said.
Some experts believe that life insurance and annuity products need incentives to reduce dependence on the government.
Konjeevaram Baradhwaj, Executive Vice President (Legal & Compliance) and Company Secretary, Future Generali India Life Insurance Company said, “While Pradhan Mantri Jeevan Jyoti Bima Yojana plays a big role in boosting life insurance penetration in the country in view of the limit. Under the scheme, a life insurance cover of Rs 2 lakh, financial incentives by way of income tax benefits help maintain a reasonable life insurance cover to support the family. Promoting life insurance (which covers mortality risk) and annuities (which help manage the risk of living longer) as key risk management tools for self-reliance and reducing dependence on the state Needed.”
Baradhwaj also underlined that in India, the penetration of life insurance sector has increased from 2.15 per cent in 2001-02 to 3.2 per cent in 2021-22. Compared to countries like Italy, France, South Korea, South Africa, and the UK, the penetration of life insurance in India is low, mainly because of the low level of life insurance literacy in India.
Experts also highlighted that there is a need to incentivize pensions in the country to get a secure retirement plan for the masses.
Sonali Athalaya, chief financial officer, Aviva India, said looking at the numbers, pension is still a low-hanging fruit. “We, as an industry, expect the government to focus on this and achieve retirement planning, long term infra funding and job creation for the masses. Simple measures like taxation parity between commuted and uncommuted pension options, along Same tax treatment for NPS and other pension schemes can do the magic,” Athalie said.
Pointing to various sections of the Income Tax Act, 1961 for deduction, Bardhwaj elaborated that even though section 80C of the Act provides for deduction for life insurance premium, the deduction limit up to Rs 1,50,000 is not covered under section 80C. , includes other eligible savings under 80CCC. & 80CCD, there is little/no room for deduction for life insurance premium.
“Special tax deduction is required to be provided for life insurance premium (including term insurance and pension policies) up to Rs 50,000 only. It will also provide for tax deduction parity for pension schemes of life insurers with pension schemes under NPS regulated by PFRDA, which are eligible for an additional special deduction of Rs 50,000 per annum under section 80CCD(1B),” Bardhwaj said. .
with rising interest rates and ukraine With the battle still going on, Finance Minister Nirmala Sitharaman has an uphill task of maintaining the resilience of the Indian economy while presenting the Budget 2023. According to Athale, infra can be one of the spending vehicles, and the life insurance industry a partner in growth. To the government by providing long term funding for infra.
The industry also highlighted clarity in taxation of life insurance business, among other issues. He said that there have been many tax litigations on income tax assessment of life insurance companies.
“The Central Government needs to form a Joint Advisory Committee of tax and industry experts to make recommendations for amendments to the IT Act, 1961 on taxation of life insurance business, besides working on a formula to settle outstanding tax litigations . An attempt was made in the draft Direct Taxes Code 2010 to bring clarity on the subject, but the draft code lapsed later,” Bardhwaj said.
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The lack of clarity regarding the new Unit Linked Insurance Plan (ULIP) taxation regime introduced by Athali in the 2020 budget or taxation of non-exempt life insurance products as capital gains or otherwise, does not augur well for policyholders.
Currently, sale of security and redemption of mutual funds are not subject to TDS. Similarly, Athale urged that the taxable income of life insurance should be out of the TDS net.
The government should use the existing robust reporting systems of life insurance companies to generate information and drive compliance. “I believe these few administrative actions will go a long way in creating a strong growth engine,” Athali said.
According to KPMG analysis (2022), broad themes for the industry will be around consolidation, potential increased foreign capital, capital market activity, ecosystem, technology and big data, as well as solvency and reporting.
The analysis states that the insurance industry is expected to grow by around 15 per cent over a three to five year horizon driven by rapid adoption of digital and big data.
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