Life insurance sector awaits reforms with hopes of economic growth

May 26 2014, 10:30 IST
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The insurance industry is still some distance away from the premium collection figures it clocked in the year ended March 2011. The insurance industry is still some distance away from the premium collection figures it clocked in the year ended March 2011.
SummaryFY14 saw some pick up in the first year premium collection in the life insurance space.

Rajesh Sud, CEO & MD, Max Life Insurance.

While misselling has been another menace that has taken a hit on the credibility of the sector, complexity of the products designed by product manufacturers has only added to their woes.

What the industry needs

The list is long. While a strong electoral mandate is something that would have been on top of mind of all insurers, it is something that has already been delivered by the Indian voters and has also led to a rise in investor sentiment as the Sensex at the Bombay Stock Exchange is trading at a new high and even breached the 25,000 mark on May 16.

The industry has also been looking for an increase in foreign direct investment limit from 26 per cent to 49 per cent. While the industry certainly needs capital for the overall business growth, the move will not only help it get the required capital but will also benefit the existing investors in the companies. A higher capital may also attract bigger global players in the Indian insurance industry and thereby will prove to be beneficial for the Indian consumers.

While increasing penetration is a major challenge for the industry, experts say that allowing banks to operate as licensed insurance brokers and sell products of multiple life insurance companies is the need of the hour.

“This will lead to an open bancassurance architecture and drive banks to align their interest with their customers by offering them a wider choice of products from a larger number of life companies, instead of the existing conflicted practice of pushing products from a single manufacturer,” said Anup Rau, CEO, Reliance Life Insurance. He added that it will provide easy access to all customers, bring a level playing field for players and also reduce the distribution cost. “In principle banks should represent the customer and not the manufacturer,” said Rau.

Tax incentive on life insurance premiums have been another prominent demand from the investors as they feel that long-term savings in the form of insurance can be best promoted by providing tax incentive on such products.

“The effectiveness of tax policies is clear with regard to shifting national savings to life insurance and promoting long-term savings. An additional tax incentive of Rs 1.5 lakh to life insurance and Rs. 1 lakh for retirement plans could result in significant growth in life insurance industry which will also result in additional inflow of Rs 90,000 crore

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