2022 was a dynamic year for the Indian insurance sector. The Insurance Regulatory and Development Authority of India (IRDAI) introduced a lot of reforms to support the industry and make it more conducive for insurance providers and policyholders to access a wider choice of options.
In the Union Budget 2022, the government raised FDI limits to 74 percent, compared to 49 percent in 2015, which was a major step forward in facilitating ease of business overseas. Increasing tie-up limits in life, health, and general insurance, each, from 3 to 9 for corporate agents also helped reach out to the last mile consumer by maximizing tie-ups with distribution channels.
This year again, the government is expected to make amendments to open up the insurance sector, simplify regulations, and widen the reach of penetration in the country.
"As this will be the last full budget for the current government, the sector expects some of the much-awaited reforms to see the light of day. These might include increasing tax benefits for the end consumer from ₹50,000 to ₹1,00,000 and a 100 percent deduction against medical expenses without any value cap. If introduced, these will boost the entire insurance ecosystem while opening new horizons and helping increase insurance penetration in India," said Surjendu Kuila- Co-Founder and CEO, Zopper.
Continued revisions and amendments under The Insurance Act of 1938 and the Insurance Regulatory and Development Act of 1999 will also help the sector to accelerate growth and development, said experts.
Let's take a look at what the insurance sector expects from this year's Budget:
1) Issuing composite licenses to the insurer, abolishing or modifying certain existing caps on health and life insurance, and making health insurance mandatory like motor insurance and so on.
2) The GST applicable on health and life insurance should be reduced from 18 percent to 5 percent, in an attempt to minimize the cost burden on the customer. This will encourage more people to buy insurance, boosting penetration in the market.
3) Increase in deduction limits under Section 80CCC from ₹1.5 lakh to 2.5 lakh.
4) Health insurance deduction limit under Section 80D of the Income Tax Act should be increased to ₹1 lakh from the current provision of ₹25,000. This will act as an impetus to improve penetration in the market as well as push the customer to get the right sum insured value.
5) Currently under Section 80CCD, a deduction of ₹50,000 is allowed for investments in the National Pension Scheme. If the government extends this limit to every other pension scheme under life insurance, it will help promote investment in annuities and contribute towards social security for the elderly.
6) Currently, ULIP investments exceeding ₹2.5 lakh are taxed. If this amount is increased further, investing in large-size ULIPs will become a comforting factor for the customers.
7) Introduction of a separate taxation section for term life insurance policies.
8) The GoI had infused fresh equity capital of ₹5000 crore in March 2022 in PSU general insurance companies to augment the solvency profile. However, some entities continue to remain weak and would need further government support in the form of fresh capital infusion.
“We anticipate the upcoming Budget will focus on policies to promote economic growth and pandemic resilience. Given the recent increases in health insurance premiums and the need to provide basic financial protection against natural catastrophes such as Joshimath, the insurance industry is expecting a combined tax relief of up to Rs1 lakh for health and household insurance," said Ankur Nijhawan, CEO, AXA France Vie—India Reinsurance Branch.
“The industry also hopes the Finance Minister will bring these basic protection plans under the zero GST mark or tax it in the 5% bracket at the most. While widening the financial protection net, such a move would also increase insurance penetration in India. Easing norms and providing help in the form of tax benefits could go a long way in opening up the segment to the currently underserved and unserved sections of the population,” he added.