India is witnessing an increase in insurance penetration and it is poised to grow rapidly due to awareness and emerging challenges in terms of an individual’s life including the health and financial security of dependents.
After Covid-19, awareness of the need for health and life insurance has increased further.
A growing middle class and increasing digital penetration will see the market size reach $222 billion by FY26, consultancy Redseer said in a report released last year.
According to data available on the official website of Invest India, the Indian insurance market stands at $131 billion as of FY22. The industry grew at a CAGR of 17% over the last two decades. India is ranked 11th in the global insurance industry.
Since the 2023 Union budget will cover different sectors of the economy, insurance experts are also looking for industry-focused measures.
Reducing GST on health insurance products, deduction limits under different sections of income tax are some of the demands that experts say will make products affordable and increase uptake insurance in the country.
Krishnan Ramachandran, MD and CEO of Niva Bupa Health Insurance, said, “Rising medical inflation has led many insurers to increase the premium on health insurance products this year. To lower the cost of premiums and make purchasing health insurance more affordable for policy buyers, insurers have asked 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 improve its penetration by making health insurance plans more affordable. Going forward, raising the limit for claiming tax deductions under Section 80D will improve affordability and encourage more people to opt for health insurance for their family and aging relatives.
The experience of the Covid pandemic and increased hospitalization expenses are leading people to consider higher sum insured health insurance plans that provide full coverage against all illnesses. “Increasing the limit under Section 80D will encourage them to opt for a health insurance plan with an adequate sum insured to guarantee the health of their loved ones,” Ramachandran added.
Some experts believe that life insurance and annuity products should be encouraged to reduce reliance on government.
Conjeevaram Baradhwaj, Executive Vice President (Legal and Compliance) and Corporate Secretary at Future Generali India Life Insurance Company, said, “As Prime Minister Jeevan Jyoti Bima Yojana plays an important role in promoting the penetration of life insurance in the country, given the limitation of a life insurance cover of Rs.2 lakhs, under the scheme, tax incentive through tax benefits helps to maintain cover reasonable life insurance to support the family. Life insurance (which covers mortality risk) and annuities (which help manage the risk of living longer) should be promoted as key risk management tools for self-sufficiency and poverty reduction. dependence on the state. »
Baradhwaj also pointed out that in India, the penetration of the life insurance industry has increased slightly from 2.15% in 2001-02 to 3.2% in 2021-22. Compared to countries like Italy, France, South Korea, South Africa and the UK, life insurance penetration in India is low, mainly due to low levels of literacy in life insurance in India.
The experts also pointed out that retirement should be promoted in the country to achieve secure retirement planning for the masses.
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Sonali Athalye, Chief Financial Officer of Aviva India, added that looking at the numbers, retirement is still a low hanging fruit untapped. “As an industry, we expect the government to focus on this and achieve retirement planning for the masses, long-term infrastructure funding and job creation. Simple measures like tax parity between commuted and uncommuted pension options, as well as the same tax treatment for NPS and other pension plans, can do the magic,” Athalye said.
Pointing to various sections of the Income Tax Act 1961 for deductions, Baradhwaj explained that although Section 80C of the Act provides a deduction for life insurance premiums, the deduction limit up to Rs. 150,000 includes other qualifying savings under Section 80C, 80CCC. & 80CCD, leaving little or no room for deductions for life insurance premiums.
“There is a need to provide a special tax deduction of up to say Rs 50,000 only for life insurance premiums (including term and pension policies). This would also provide tax deduction parity for life insurers’ pension schemes with pension schemes under the NPS regulated by the PFRDA, which are entitled to an additional special deduction of Rs 50,000 per annum under the section 80CCD (1B),” Baradhwaj said.
With rising interest rates and the war in Ukraine still ongoing, Finance Minister Nirmala Sitharaman has the daunting task of keeping India’s economy resilient while presenting the 2023 budget. infra can be one vehicle, and the life insurance industry can be a partner in progress for the government by providing long-term funding for infra.
Among other issues, the industry also highlighted the clarity of the taxation of life insurance business. They said there had been numerous tax disputes over the income tax assessment of life insurance companies.
“The central government is to form a joint advisory committee of tax and industry experts to make recommendations on amendments to the Computer Act of 1961 on the taxation of life assurance business, in addition to developing a formula for settling the pending tax disputes. An attempt was made in the draft direct tax code of 2010 to clarify this subject, but the draft code subsequently lapsed,” Baradhwaj said.
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Athalye highlighted the lack of clarity around the new Unit Linked Insurance Scheme (ULIP) tax regime introduced in the 2020 budget or the taxation of non-exempt life insurance products as capital gain or otherwise, does the insured no good.
Currently, the sale of securities and redemptions of mutual funds are not subject to TDS. Similarly, Athalye insisted that taxable life insurance products should be out of the TDS net.
The government should use the strong existing reporting system of life insurance companies to generate information and drive compliance. “I think these few administrative actions will go a long way to creating a robust engine of growth,” Athalye noted.
According to an analysis by KPMG (2022), broader themes for the industry will relate to consolidation, possible increase in foreign capital, activity in capital markets, ecosystems, technology and big data as well as solvency. and reporting.
The insurance industry is expected to grow by around 15% over a three- to five-year horizon while rapidly adopting digital and big data, according to the analysis.
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