Insurance Industry: India still remains vastly under-insured with a penetration of only 2.8% as compared from 6-18.3% for Asian countries such as Singapore, Japan, Taiwan and Hong Kong.
India’s pension market is under-penetrated at 4.8% of GDP.
By Vibha Padalkar
Macro economic: India’s GDP shrunk by 23.9% and 7.5% respectively, in the first two quarters of FY20-21 due to the pandemic. Improvement across key economic indicators and Phase 1 of India’s Covid-19 vaccination programme has set expectations around a V-shaped recovery in GDP growth to 8-11% in FY22.
Insurance Industry: India still remains vastly under-insured with a penetration of only 2.8% as compared from 6-18.3% for Asian countries such as Singapore, Japan, Taiwan and Hong Kong. India’s pension market is under-penetrated at 4.8% of GDP.
India’s insurable population (20 to 64 years) is expected to rise to 61% of the total expected population of 1.6 billion by 2035 as compared to 56% of total population of 1.3 billion in 2015. Also, India’s elderly population is expected to double by 2035 and triple by 2050 as compared to 78 million in 2015.
The insurance industry in India has seen steady growth in the last decade. Demographic factors such as a growing insurable population, shift away from joint family system, increasing trend of borrowing for consumption and growing awareness of the need for saving, protection and retirement planning makes this a multi decade opportunity. The Indian Life insurance market grew by 12% in FY20 in terms of total gross premium to reach a value of `5.7 trillion.
Budget Analysis: The Union Budget 2021-22 is focused on revival of economic growth and takes cognizance of the need for higher allocation for Covid-19 vaccine development and distribution. The expansionary nature of the Budget was the need of the hour and comes along with a roadmap for fiscal consolidation. Higher allocation to capital expenditure should support growth revival and job creation. FDI increase in insurance, continuation of the disinvestment programme and ease of tax compliance are welcome steps. All in all, the Budget addresses key issues facing the Indian economy and does the balancing act required in these unusual times.
The Budget has two proposals for the insurance sector:
Higher FDI: Proposed FDI limit increase from 49% to 74% with foreign ownership and control with safeguards would provide flexibility in shareholding structure where insurers are not just dependent on domestic capital to expand their business. Potential benefits could include introduction of technology/ best practices and global experience to the extent not already present in India.
Change in 10 (10D) benefit for high ticket size ULIP policies: ULIPs issued on or after February 1, 2021, with an aggregate annual premium of more than `2.5 lakhs would not be entitled for exemption under section 10 (10D) of the Income-tax Act, 1961. This would put high ticket size policies on par with equity mutual funds.
While the product category continues to be attractive for customers, impact on business for insurance companies would depend on their product mix and average ticket size. Death benefit continues to be exempt under section 10 (10D) of the Income-tax Act, 1961.