Jayant Sinha, chairman, Parliamentary Standing Committee on Finance
The Committee is in favour of allowing composite licensing that could provide further impetus to the insurance sector owing to its various benefits
New Delhi:
The Parliamentary Standing Committee on Finance chaired by BJP MP Jayant Sinha has made a set of recommendations to make insurance more affordable and improve the functioning of the Indian insurance sector.
It has proposed GST rates, applicable to health insurance products, particularly retail policies for senior citizens, microinsurance policies and term policies, should be reduced.
In its report- Performance review and regulation of the insurance sector- tabled in the Lok Sabha on Tuesday, the Committee has further proposed strengthening public sector general insurance companies and reserving a portion of 50-year government bonds for insurers to cater to their long-term investment requirement.
The Standing Committee has stressed that there is a need to rationalise the GST rate on insurance products, especially health and term insurance, which is 18 per cent at present.
“The high rate of GST results in a high premium burden, which acts as a deterrent to getting insurance policies. With a view to make insurance more affordable, GST rates applicable to health insurance products, particularly retail policies for senior citizens and microinsurance policies (up to limits prescribed under PMJAY, presently Rs 5 lakh) and term policies may be reduced,” it said.
The Committee is also in favour of allowing composite licensing that could provide further impetus to the insurance sector owing to its various benefits.
“It can cut costs and compliance hassles for insurers, as they can run different It can also offer customers more choice and value, such as a single policy that covers life, health, and savings,” the panel said.
To enable composite licensing, the government and the IRDAI are planning to bring amendments to the existing insurance legislation.
The panel suggested that the government in consultation with stakeholders find solutions to composite licensing issues such as different risks and returns from different types of insurance; the accounting and reporting standards as they have to keep separate funds and records for different types of insurance; etc.
The Committee also noted that the PSU insurance companies have to mandatorily participate in government-run insurance schemes that impact their profitability.
“The committee, with a view to ensuring a level-playing field, recommends that such provisions be uniformly applied to all players,” it said.
Also,taking note of the fact that TDS (Tax Deducted at Sources) on GST that applies only to public sector insurance companies, the committee has also suggested for a level-playing field between public and private sector insurance companies in terms of TDS on GST and participation in government-run insurance schemes..
According to CGST ACT, TDS at the rate of 2 per cent is required to be deducted from the payment made or credited to the supplier of taxable goods or services or both, where the total value of such supply exceeds ₹2.50 lakh. This is applicable to entities mentioned in Section 51 of CGST Act and includes public sector undertaking insurers.
“The said requirement for TDS is not applicable on private insurer as the same is not notified under the said section. We have requested the Revenue Department to examine the matter and take necessary action,”,” Financial Services Department had informed the Committee.
Moreover, the Committee observed that the financial condition of four PSU general insurance companies needs to be strengthened.
They lack adequate capital have created a solvency issues for these companies.
In regard to their performance, the Committee has been apprised that their overexposure in health insurance business, i.e. 50 percent of their total business, has been one of the reasons, as the same has led to Rs 26,000 crore of losses in five years from 2016-17 to 2020-21.
Further, citing Motor Annual Report, 2019-20, of the Insurance Information Bureau of India (IIB), the panel has pointed out that there are over 25.33 crore vehicles on the road in India as on March 31, 2020 and out of that the percentage of uninsured vehicles was nearly 56 percent.
“This indicates that a large number of vehicles (particularly commercial vehicles) are plying on the roads without any insurance cover, which poses a risk to the owners and third parties in case of accidents or damages,” said the panel.
The committee recommended implementation of e-Challan enforcement across states by leveraging data integration by IIN, mParivahan and National Information Centre data. It also suggested that financial institutions consider providing loans when they have proof of insurance coverage.
Focusing on microinsurance products, the panel has said new products in this segment need to be developed and provided as affordably as possible for the financial protection and security of the low-income and vulnerable sections of society who are exposed to various risks such as health, crop, life, etc.
“Developing innovative and customised products that suit the needs and preferences of the target population is vitally important. The committee feels that this may require encouraging smaller, niche players in various geographic areas. The committee recommends that the capital requirement of Rs 100 crore may be reduced for such players,” it said.
The panel recommends that the Reserve Bank of India issue ‘on-tap’ bonds to fulfill the insurance industry’s capital needs, estimated between Rs 40-50,000 crore.