Vighnesh Shahane, MD & CEO, Ageas Federal Life Insurance
The insurance industry wish-list for the annual Budget has been largely the same for the last four-five years with the aim of driving insurance penetration in the country.
A few of our recommendations include:
- To increase the penetration of pension and to make India a pension society, especially since we don’t have any social security cover, our request is to make pensions tax-free in the hands of the customer because the pension premium is already paid through taxable income. So, we recommend that the proceeds of the pension / annuity should be made tax-free in the hands of the customer or to allow deduction for the principal component.
- Alternatively, if we could have a separate bucket for pensions in the range of Rs. 50,000-75,000/- that would help to level the playing field with NPS.
- The current limit of health premium (including preventive medical check-up costs) under Section 80D is only Rs. 25,000/- and needs to be increased. The last two years of Covid have proven that the current limit is not enough, and they need to significantly increase the limit. Whatever is said and done, people do buy life and health insurance for tax-saving purposes, so we do need to give them a hook of a higher deduction limit.
- As per a budget announcement a couple of years ago, for ULIPs with an aggregated premium amount of Rs. 2.5 lakh p.a or more, the maturity amount, which was earlier tax-free under Section 10(10D) of the Income Tax Act, became taxable. This should be reversed as it disincentivises big ticket investments.
- Section 80C of the Income Tax Act is currently cluttered with several investment options such as life insurance premium, PPF, ELSS, NSC, NPS, principal on home loan amongst others. If you are a salaried employee, most of it goes into EPF and PF. So, we would recommend a separate bucket for life insurance policies or an increase in the limit from Rs. 1.5 lakh to Rs. 2-2.5 lakh. Atleast a separate section for Term policies would be helpful given the huge protection gap in the country.
- Raising the TDS exemption limit on insurance commission (under section 194 D of the Income Tax Act) from the current level of Rs. 15,000/- would provide a greater impetus to insurance agents.
- We recommend zero-rated GST for protection products as 18% GST makes the term plans costlier. To increase insurance penetration in the country, the basic protection plans should made available under zero-rated GST.
Outlook for 2023
Pandemic Positives
For the life insurance sector, while the pandemic years were tough due to a massive surge in claims, on the positive side, there was a significant increase in awareness about the importance of life insurance as financial protection from life’s uncertainties.
However, with India having one of the lowest penetration rates for insurance in terms of GDP among developing countries along with a huge protection gap, there is much more that needs to be done in terms of awareness creation and insurance penetration.
Another positive to emerge out of the pandemic was an acceleration of the digital journey of the insurance industry.
‘End-to-end digital’ journey for the customer
During the year, there were a number of laudable announcements by the regulator aimed at further driving insurance penetration, enhancing customer centricity and leveraging the growing digitalisation of the industry.
The regulator has urged insurance companies to open e-insurance accounts (eIA) for their customers which would act as the first step towards dematerialisation of insurance policies. The regulator has also proposed the setting up of Bima Sugam, a digital portal which integrates the entire insurance ecosystem on one platform.
Customers would be able to purchase life, health and motor policies directly from the platform as well as raise service requests and make claims.
Proposed amendments by the regulator
In a recent announcement, the regulator has also proposed several amendments aimed at opening up the sector, driving penetration and enabling greater customer convenience. One of the proposed amendments is a composite license for insurers which would allow a life insurance company to sell non-life products and vice versa.
The other proposed amendments include permitting the agents of an insurance company to offer other financial products to customers, removing the minimum capital requirement for setting up a new insurer in the country and allowing a life insurer to sell indemnity health products.
Products perspective
Customers are showing an enhanced interest in protection products after witnessing the devastation caused by the pandemic.
With the falling interest rate regime and uncertain global economic scenario, customers are also showing greater demand for guaranteed plans.
We have also seen a lot of new in-flows and renewals of ULIP plans due to the buoyant stock markets.
This year, the regulator extended the ‘use-and-file’ framework to life insurance companies which allows them to launch certain categories of products without prior approval. This move is aimed at adding agility and flexibility to life insurers’ product design and launch processes.
Outlook for 2023
As we move into 2023, digital transformation, product customisations and innovations, and service enhancements, are likely to continue as the industry looks to further build upon the momentum achieved this year.