Insurers seek Budget support for tax incentives, more global participation, push for health cover

Insurance companies are looking at government support for the sector through Budget announcements that enhance accessibility, simplify tax benefits, and encourage innovation in insurance products. These include regulatory and fiscal support to initiatives such as Bima Sugam, which aims to address the protection gap and achieve the ‘Insurance for All’ goal by 2047.

India is estimated to be Asia’s fourth-largest general insurance market and 14th-largest globally. According to data from the Insurance Regulatory and Development Authority of India, health insurance has led this growth, which has grown around 25% annually over the past three years.

The biggest expectation from the Budget is that the government will table the Insurance Laws (Amendment) Bill 2024, which is expected to introduce a slew of reforms for the insurance sector and simplify regulatory, corporate, and capital requirements for insurers.

“The government might table the Insurance Laws (Amendment) Bill 2024 in the Budget session, therein proposing a score of changes to capital requirements, permissible FDI limit, opening up of the agency channel, minimum capital requirements and more,” said Subhrajit Mukhopadhyay, executive director, Edelweiss Life Insurance, adding that these changes will significantly accelerate the growth of the industry and support financial inclusion.

The Insurance Bill is also expected to include the introduction of a Composite License that will allow insurers to sell both life and general insurance products, provide an open architecture for agents allowing them to distribute products of more than one insurer, and other value-added products and services.

“Given the weak solvency position of the public sector undertaking (PSU) general insurance companies, the announcement related to budgetary allocation for their recapitalisation will be positive. Further, given the low penetration of the insurance segment, the government can announce measures to incentivize the penetration, especially for the lower ticket size policies,” said Neha Parikh, vice president and sector head – Financial Sector Ratings, Icra.

Foreign participation

The insurance sector has long asked for the regulatory framework to be suitable for increased participation from different players and for more foreign participation in the Indian insurance sector by relaxing foreign direct investment (FDI) regulations to attract more foreign capital.

“One of the key proposals under consideration has been raising the Foreign Direct Investment (FDI) limit in insurance from 74% to 100%. Insurance is a capital-intensive industry, and any move to enhance capital access is undoubtedly beneficial. This could attract global insurers seeking greater control on Indian operations,” said Shanai Ghosh, managing director of Zuno General Insurance, adding that this will also help access to the latest technology and new products and bring in global best practices in processes and governance, thus improving the operational efficiency of the Indian market.

Debashish Banerjee, partner at Deloitte, said that the entry of more players or the tie-up of Indian companies with foreign firms will foster innovation in products and competition for the market, which may translate to higher penetration and seamless services to customers.

Tax incentives

Considering the low single-digit penetration of life insurance in India, insurance players believe that tax incentives focused on first-time life insurers and the principal component of annuity income will encourage more participation. Similarly, special incentives for women who account for barely more than a third of the country’s life insurance coverage will support penetration.

Further, insurers hope for an increase in the deduction limit for insurance investments under Section 80C, which has remained essentially unchanged over the years. Insurers also favour a more segmented approach wherein a separate deduction may be carved out for the insurance sector.

“The industry is also hoping for an increase in exemption limits under Section 80D for premiums paid in respect of health insurance, even though there is an overall move for a simpler tax regime with no such exemptions,” Zuno General’s Ghosh said, adding that this could incentivize more people to purchase health insurance by making it more accessible.

Edelweiss Life’s Mukhopadhyay also highlighted the role of insurance companies in financing long-term investments, especially in the infrastructure sector. He suggested that the Budget consider incentivizing investments in life Insurance products, given that insurance sector funds cover 25% of government borrowing through investments in government bonds.

Howden India’s Agarwal also favoured a goods and services tax (GST) waiver on retail life insurance, offering greater tax incentives for corporates providing group life and health policies and a mandatory centrally funded life and health insurance scheme for armed forces personnel.

Policy initiatives

Deloitte’s Banerjee is in favour of setting up an advisory board to facilitate better Public-Private Partnerships (PPPs), enhance collaboration between private insurers and public health programmes, especially in the life and health insurance space, and make Budget provisions to improve insurance coverage and affordability.

“Establishing a board comprising industry leaders, academic experts, technologists and policymakers dedicated to boosting insurance penetration would be a key strategy in tackling the challenges of accessibility, affordability and awareness in India’s insurance sector,” he said.

Naveen Chandra Jha, managing director and chief executive of SBI General Insurance, echoed the sentiment, saying that the Budget is likely to focus on expanding access in underserved regions “through government-private partnerships, targeted subsidies, and advancements in digital infrastructure.”

Insurance players hope the Budget will announce specific allocations to support digital insurance infrastructure, such as reducing the burden of licensing or regulatory approval for insurance companies. Policies and support for digitisation, fair data collection, and usage will catalyse the shift to digital platforms and facilitate more AI and data-backed products.

This will also help build data-backed solutions to assist underwriting, risk management and claims operations, help develop lifestyle and disease predictive models to better predict risk, improve customer services and claims operations, bring more expertise in underwriting and risk assessment, and help set up early life and health insurance warning systems, experts said.

Push for health cover

Healthcare costs are rising significantly and are expected to double in six years, prompting insurance players to urge the government to implement measures that can help make healthcare more affordable for all Indians. As per the National Health Policy, the outlay for healthcare spending has been proposed to be increased to 2.5% of the GDP by 2025.

“Given the rising healthcare costs and the need for higher sum insured cover, the government should reduce tax burden by increasing the limits under Section 80D of income tax for premium paid for health insurance to ₹50,000 for all and ₹1 lakh for senior citizens,” said Srikanth Kandikonda, chief financial officer, ManipalCigna Health Insurance, adding that this will substantially reduce the financial burden on families investing in their health and financial wellbeing.

Anup Rau, managing director and chief executive of Future Generali India Insurance, said the deduction limit under Section 80D needs to be enhanced, given that India’s medical inflation rate of 14% has surpassed that of other South Asian peers.

“It is best if the limit for medical insurance is linked to inflation and gets revised automatically every year or once in a couple of years. Also, the benefits need to be extended to the New Tax regime since increasing health insurance penetration is critical,” he said.

In addition, industry players have also called for removing or lowering the 18% GST on health insurance and continuing the input tax credit, which would improve insurance affordability and help the government focus on improving penetration as it would shift much of the burden of healthcare coverage to the private sector.

Insurers said it is also essential to assess and address the impact of providing free health insurance for senior citizens under Ayushman Bharat, which could decrease retail premiums and increase group/government premiums.

Need for skilled talent, niche products

Industry participants have sought measures to push the supply of talent, including establishing more institutions to train individuals in both technical and non-technical skills and attracting more global talent. Currently, there is only one institute for training insurance professionals—the National Insurance Institute.

“Establishing government-backed educational institutes and skill development centres will empower young professionals, ensuring insurance reaches the grassroots and secures every Indian’s future,” said Amit Agarwal, CEO of Howden India, adding that it is crucial to nurture a strong talent pipeline for the insurance industry.

Further, given the rising impact of climate change and increased calamities, peril insurance penetration must improve from its current low levels, insurers said, adding that there is a need to boost efforts on increasing insurance awareness and providing simplified niche products.

In the same vein, considering the expected growth in the sector and increased wealth and data, insurance players believe it may also be beneficial to establish another reinsurance company besides the General Insurance Corporation (GIC) of India.

They said this move towards more transparent and proactive regulations is critical as it will help develop internal and domestic capabilities to manage the scale of expansion needed in the insurance sector in the next 5-7 years.

According to a note by Deloitte, the insurance sector is performing well in areas such as digital transformation, microinsurance growth, and the adoption of ESG principles. However, it faces challenges such as declining margins in traditional insurance lines, rising claims costs, regulatory pressures, and the complexity of underwriting emerging risks such as cyber threats.

“A virtuous cycle of growth and investment can only gain momentum when there is adequate insurance as a shock absorber against unforeseen events. The above-mentioned measures will go a long way in making insurance more affordable and hence accessible to masses and drive higher penetration in the country,” Future Generali India’s Rau said.