The general insurance industry is among several sectors yet to realise their true potential, as it remains under-penetrated at 0.75% of the GDP. It plays the important role of absorbing critical risks at a marginal cost, whether it pertains to a companyís operations or an individualís personal assets. It is time the challenges faced by the industry are addressed, which include under-penetration, hurdles to growth and absence of long-term growth policies.
Increase penetration. It is not feasible for the government to solely meet the increasing healthcare needs of the nationís vast population. The government should work towards ensuring an insured population by encouraging corporates to provide health cover to their employees through suitable tax incentives. A health cess can be imposed on those companies, which decide not to provide such cover. The health cess can fund initiatives such as Universal Health Coverage, which remains an important long-term agenda for the nation. To facilitate adoption of health insurance among individuals, the Budget should increase income-tax exemption for health insurance to R50,000 from the current R15,000 (plus R20,000 for senior citizen parents) under Section 80D.
Home insurance is another segment with few takers. The Budget should propose steps to make it mandatory for all home owners at the time of registration.
Remove hurdles to growth. The reinsurance sector has witnessed subdued growth, amid hurdles like tax ambiguity. This has limited the capacity of insurers to take on risks. The old view on reinsurance premium paid to the non-resident re-insurer (NRRI) accruing in India and, hence, chargeable to tax needs to be revisited. The UN Model Convention specifically exempts reinsurance from deeming accrual of income, notwithstanding the fact that the premium or risk may pertain to the territory of any particular country.
It is important that overseas reinsurance remittances towards premium are exempted from withholding tax. In absence of this clarity, NRRIs will curtail investments in Indiaís insurance sector. The lack of reinsurance support will be detrimental to growth.
The industry finds itself at a disadvantage to other sectors on taxation of capital gains from transfer of listed securities. Policy makers need to bring the non-life sector on a par with others on taxation of long-term investments.
Unveil policies for long-term growth. The insurance Bill needs to be passed to enable long-term capital inflows. Outdated Acts, such as Motor Vehicle Act pertaining to motor third-party claims, need revision. It is time that maximum liability on third-party claims is fixed as is the practice in developed countries like US, UK and Germany. The period permissible to make a claim too needs to be fixed at within three years from date of accident for timely intimation and claims payment.
Another key measure would involve forming a natural catastrophe pool. With the industry looking at increasing exposure to catastrophes, this will enable insurance firms to take on this critical risk component. Budget 2014 should act as an enabler for the general insurance industry to efficiently perform its role of risk mitigation. With a thriving general insurance sector, the nation can focus on growth-oriented initiatives without getting stymied by risk-related constraints.
The writer is MD & CEO, ICICI Lombard General Insurance Company
Time for change
Impose health cess on firms that donít provide cover to employees
Increase I-T exemption for health insurance to R50,000
Make home insurance mandatory at time of registration
Abolish or revise outdated Acts, such as Motor Vehicle Act
Form a natural catastrophe pool to deal with calamities