Despite the pan India presence of many insurance companies, the insurance penetration is very low in the country. The reasons for low insurance penetration include high premium, high tax rates, lower adoption of technology etc.
There are high expectations that the government would take steps in the upcoming Union Budget for the financial year 2022-23 to increase the insurance penetration in the country.
Supriya Rathi, Wholetime Director, Anand Rathi Insurance Brokers Pvt Ltd, lists the Budget expectations:
Reduction of GST
The recent pandemic and natural calamities have emphasised the importance of health care and home insurance on the economy.
To further give a boost to health Insurance and its deeper penetration, following steps may be taken:
- GST on all health insurance products should be reduced from 18 per cent to 5 per cent
- Small ticket size Insurance products like micro insurance and products with smaller insurance limit (sum insured limits up to Rs 5,00,000) may be exempted from GST, this will provide added boost to these products by making them affordable and increasing penetration levels
- Certain Health Insurance policies which got introduced during Covid (Corona Kavach & Corona Rakshak) should be continued till March 31, 2023 and should be totally exempted from GST
- All Health Insurance policies for senior citizens should be totally exempted from GST
Stamp Duty on Life Insurance
Stamp duty needs to be completely exempted on term life insurance policies since these policies cover pure risk and are not investment products.
80D tax deduction limit
The limit of health Insurance under section 80D should be increased from Rs 25,000 to Rs 50,000 and Rs 1,00,000 for families and completely removed or raised further for senior citizens
The risk associated with the Pandemic is currently a top-of-the-mind issue for businesses and individuals. Support from the Central government is required for the successful start of the Pandemic pool.
The government support can gradually reduce to near-zero levels, as the pool becomes self-sufficient with an accumulated surplus over a period of 10 -15 years as we have seen in the case of the Terrorism Risk Pool. Reinsurance capital is more likely to be available to the first few countries that start the pool.
Double taxation for reinsurance broking
Currently, GST is paid on reinsurance premium and again paid by the insurance broker on the reinsurance brokerage. This should be removed and tax treatment is made simple.
NAT CAT protection
During the last 5 years, India has seen several extreme weather events that are set to multiply in the future. Most of the assets damaged during these events are uninsured and the burden of reconstruction, support, and relief largely falls on the government.
Worldwide many countries have created government-sponsored NAT CAT pools and Catastrophic Bonds (CAT Bonds) / Sovereign schemes as insurance financing solutions for catastrophic risk, which keeps the budget expense and allocations less volatile.
The government should consider insurance-based financing options and the introduction of Instruments such as catastrophic bonds or natural catastrophic pools that will help the government save on unplanned relief expenses
Relaxing Investment norms for Insurers
In the upcoming Budget, policy initiatives may be laid down to relax investment norms and thereby, enable insurance companies to generate better returns for policyholders.
GST Input credit
Health insurance will get a big boost if corporates are encouraged to offer Health Insurance to cover their employees. For this, the employers should be allowed to claim an input tax credit for the GST paid on group health insurance covers. The current GST regulations do not have these provisions.
Privatisation of Public sector general insurers
The government may announce certain capital infusion in the Public sector insurance companies for privatisation and better valuation. The Finance Minister has already announced the intent to take one General Insurer for privatisation. More clarity is expected in the budget.
Emphasis on AI & Automation
For both insurance distribution and for faster claims management, emphasis on AI and Automation should be the focus area of the government through the regulatory channel.