By Parag Raja

The Union Budget is a pivotal event that shapes India’s economic landscape. For the life insurance sector, a cornerstone of financial inclusion and economic stability, it presents an opportunity to align with national objectives and enhance the financial well-being of millions. As per IRDAI 2023-24 annual report India’s insurance penetration was 3.7%, which is lower than the global average of 7%. The IRDAI report highlighted that low penetration reflects a lack of widespread insurance coverage, a pressing concern in a rapidly developing economy with rising risks and vulnerabilities.

Budget 2025 can unlock the industry’s full potential through measures such as enhancing tax deductions under Section 80C, rationalising GST rates, and fostering innovation through expanded regulatory support to enable life insurers to deliver value at scale and realise the vision of ‘Insurance for All by 2047.’ 

Tax Reforms to Promote Insurance Penetration

Section 80C Limits

The deduction limit under Section 80C stands at ₹1.5 lakh. An increase would incentivize individuals to commit to long-term savings, boosting policy adoption. There are countries where tax incentives have boosted the insurance sector. Singapore’s tax incentives for life insurance premiums have significantly enhanced insurance penetration—a model that could work for our nation as well.

Group Insurance Policies

Allowing employers to claim tax benefits on premiums paid for group insurance policies would encourage companies to offer comprehensive coverage to their employees. Japan’s experience with tax incentives for employer-sponsored insurance has successfully promoted financial security among its workforce.

GST Rationalisation

Life insurance premiums attract GST rates varying by policy type, with term insurance policies subject to 18% GST on the entire premium. A reduction in GST rates would lower costs for consumers, making insurance more accessible to different segments. This adjustment could accelerate penetration in underserved markets.

Incentive for Long-Term Investments

Providing tax incentives to insurers for long-term investments such as infrastructure projects would stimulate economic development while offering stable returns to insurers, creating a mutually beneficial scenario.

Regulator’s Initiatives Driving Insurance Penetration through Digital Innovation

  1. Expanding the regulatory Sandbox: The Insurance Regulatory and Development Authority of India (IRDAI) continues to demonstrate its forward-thinking approach by nurturing innovation through its regulatory sandbox. The expansion of this sandbox to encompass advanced technologies like AI, blockchain, and IoT is already paving the way for transformative solutions in the insurance sector. Drawing parallels with Singapore’s successful fintech sandbox, India’s evolving framework is positioning the country as a hub for global innovation, offering insurers and tech players an unparalleled opportunity to experiment, refine, and scale their ideas within a secure and supportive environment.
  2. Enhancing data sharing with a focus on security: The regulator’s proactive stance on fostering secure data sharing between insurers, fintechs, and other stakeholders is commendable. By facilitating responsible data exchange, IRDAI is enabling the development of innovative products and enhanced customer engagement. Inspired by globally established standards like the EU’s GDPR, India’s evolving data governance framework reflects a balanced approach that prioritizes innovation and data protection.
  3. Establishing robust data governance frameworks: With this measure in place, insurers will be empowered to leverage data responsibly for risk management, personalisation, and improving customer experiences essential components for building trust, ensuring efficiency, and driving insurance penetration across the nation.

Macroeconomic and ESG Considerations

  1. A stable macroeconomic environment: Environment characterized with consistent GDP growth, controlled inflation, and favourable interest rates is essential for encouraging long-term savings and investments. Such stability fosters consumer confidence, directly impacting the demand for life insurance.
  2. Promoting Financial Inclusion: The government’s effort to expand digital infrastructure and banking access should be further supported to allow insurers to reach rural and underserved communities, thereby bridging the protection gap in areas that need it most.

The Budget can promote sustainability by offering tax incentives to insurers investing in ESG-aligned assets or developing green insurance products. For instance, insurers offering climate-risk solutions or microinsurance for low-income communities can address critical social challenges while unlocking new market segments.

Collectively, these initiatives will not only boost insurance penetration but also contribute to building a financially secure and resilient India.

(The author is MD & CEO, Bharti AXA Life Insurance. Views expressed are the author’s own and not necessarily those of financialexpress.com.)