The Union Budget forms one of the important components of policy making to steer the economic road map. For the non-life insurance industry, the Budget needs to provide critical impetus. The passage of the Insurance Amendment Bill in 2015 paved the way for the long-term development of the industry. We have already seen the positive outcome of this as many foreign players increased their stakes in their insurance JVs thereby bringing in critical long term capital.
However, a lot more needs to be done if the non-life insurance sector has to improve on its current penetration of 0.8% of GDP. Any major calamity or a personal incident leaves behind a big financial loss for a huge percentage of population given that people are not insured against such risks. The recent Chennai floods exemplify this point with total losses estimated at Rs 50,000 crore though insured losses were only Rs 5,000 crore. The Budget can provide the much-needed fillip to the non-life insurance sector in its endeavour to increase insurance reach.
While consumers not buying insurance is a big issue, the industry faces another problem of under-insurance as most policy holders take inadequate cover. The government’s move in the previous year’s Budget to increase the tax rebate on health insurance from Rs 15,000 to Rs 25,000 for an individual/ family was a welcome step. However, more needs to be done on this front. Medical inflation continues to rise in double digits.
At the same time, life style diseases are impacting individuals frequently and at a younger age. In this scenario, it is imperative that people not only avail insurance but are adequately covered. With tax rebates influencing the decision to buy certain amount of sum insured, the government should further enhance the limit to Rs 50,000.
Staying on the health insurance subject, an anomaly that the budget needs to correct is on the service tax front. While the services provided by hospitals, clinical establishments are exempted from levy of service tax, when a health insurance cover provides these services, the same is subject to service tax. This tax imposition renders treatment through health insurance schemes at a disadvantage compared to health care services offered directly by health care providers in terms of costs. This imbalance needs to be removed and health insurance services should also be exempted from service tax.
Going beyond the above provisions aimed at incentivising purchase of health, the Budget can be used as a platform to introduce much-needed reforms in the healthcare space.
Despite being one of the most critical sectors that impact the nation’s productivity and quality of life, the healthcare sector remains without the supervision of a health regulator. With medical treatment and health care witnessing high variance, there is an urgent need for a supervising body that has the necessary regulatory powers to introduce transparency in healthcare efforts and deliverables, streamline the actions of multiple stakeholders and most importantly ensure that all initiatives are aligned with the interests of healthcare seekers.
There are other segments which need budgetary support. Home insurance is one of them. Despite the frequent occurrences of natural disasters e.g. Uttarakhand, J&K and Chennai floods and the earthquake in neighbouring Nepal, segments such as home insurance find few buyers. The Budget should address this issue and introduce necessary measures through tax rebates to push home owners to avail the all-important home insurance cover.
The Union Budget 2016 will be presented amid the backdrop of a challenging macro environment even as the country works towards creating opportunities for a young and aspiring population. Policy makers would do well to seize the moment and ensure that Indians are adequately covered for risk even as they seek to chart out new growth maps.
The writer is executive director, ICICI Lombard General Insurance