Last week, a report by Swiss Re Institute said that the insurance industry in India was projected to grow the fastest among the G20 countries with an average annual rise of 7.1 per cent in premiums in real times during 2024-28.

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The institute also said that the growth of the Indian insurance industry was expected to be much higher than the global average of 2.4 per cent during the same duration.

Even with such high projected growth, the penetration of insurance in India is quite low. According to the Insurance Regulatory and Development Authority of India (IRDAI), the non-life insurance penetration in India for FY23 stood at one per cent, for life insurance, it was three per cent and for industry, it was four per cent.

As the date of the interim budget comes closer, insurance industry experts have high expectations of Finance Minister Nirmala Sitharaman, who is set to present the budget on February 1.

While a few of them want a reduction of 18 per cent GST in insurance products; a few of them want a separate section for insurance premiums other than Section 80C of the Income Tax Act.

While some advocate that the current RS 50,000 tax exemption for NPS under Section 80CCD(1B) should be extended to pension and annuity plans, one recommend the removal of the 5 per cent GST on hospital room rent exceeding Rs 5,000.

In this write-up, we go through the expectations of insurance industry experts from the government.

Santosh Agarwal, Chief Business Officer – Life Insurance, Policybazaar.com 

The impending Budget 2024, and the insurance sector eagerly supports the prospect of an increased tax benefits limit to boost insurance penetration in India.

Tax relief has historically catalysed insurance adoption, aligning with IRDAI's vision of insuring India by 2047.

Key expectations from this year's Budget include a reconsideration of taxes on the entire insurance category to achieve a fair balance.

Proposals include establishing a dedicated exemption category for term insurance, addressing the current exhaustion of the Section 80C deduction limit of Rs 1,50,000 due to other allowable expenses.

Additionally, a reevaluation of the 18% GST rate aims to ensure pricing benefits reach end consumers, fostering increased life insurance investments.

Recognising the tendency to defer retirement planning, equal tax treatment for pension products is emphasised, aligning them with the National Pension Scheme (NPS).

Proposals advocate a tax-free status for annuity income derived from pension products to encourage wider adoption and enhance parity with other investment avenues.

In the post-pandemic era, the significance of health insurance is underscored, prompting calls for innovative tax structuring.

Suggestions include increasing the maximum deduction limit for self, spouse, and dependent children to Rs 50,000, and for senior citizen parents to Rs 1 lakh.

Additionally, extending tax exemptions to Health Savings Accounts is proposed to empower individuals in planning for escalating healthcare expenses.

Anand Roy, MD and CEO of Star Health and Allied Insurance 

Health insurance has become a basic necessity today, whether one is self-employed or a salaried person.

It is a critical component in mitigating rising healthcare costs while accessing quality health care treatments for individuals and families.

Senior citizens constitute approximately 9% of our population, and with a higher life expectancy, access to health insurance protection is crucial.

However, penetration of health insurance continues to be very low in our country.

More than 50% of healthcare expenses are met out of pocket.

Given the importance of health insurance in safeguarding families and senior citizens against increasing hospitalisation costs and alleviating financial strains, in light of these circumstances, the insurance industry would urge the government to consider a reduction in the existing 18% GST rate on retail health insurance products.

This reduction in the GST rate would not only enhance the affordability of health insurance for the general public but also contribute to increasing insurance penetration and accessibility, particularly in tier-II, tier-III cities, and rural markets.

H.O. Suri, Managing Director & CEO, IFFCO Tokio General Insurance Company Limited 

The Government should ensure widespread vehicle insurance coverage across India.

It should consider waiving GST on health policies for senior citizens and reducing it for other age groups to encourage greater adoption of insurance.

Additionally, there is a need to digitise and streamline Government operations for both crop and mass health insurance.

Introducing measures to address catastrophic losses is also crucial for a comprehensive and effective insurance framework.

To make the budget more insurance firm-friendly, I believe, the Government should consider implementing measures that encourage innovation and industry growth.

And, to make the budget more policyholder-friendly, the Government should prioritize initiatives that enhance transparency, affordability, and accessibility of insurance products.

Overall, the Budget is likely to reflect a strategic approach to fortify the insurance sector, aligning with contemporary challenges and opportunities."

Prasun Sikdar, MD & CEO, ManipalCigna Health Insurance

The rising cost of healthcare services and overall medical inflation in the country have made health insurance an absolute necessity.

Access to health insurance can help more people become part of the health care system and get access to quality treatment.

Thus, we are hopeful in the upcoming Union budget  the government looks at considering 5% GST tax slab on health insurance premium to make it more affordable for the people living in the middle-income group to get access to quality healthcare care they need.

GST rate cut from 18% to 5% on the health insurance premiums will be a huge respite especially for senior citizens who are struggling to meet the rising healthcare costs. 

At present, on most insurance products the GST is 18% which thrusts the premium to 118% for the end-user.

The abolition or at least a sizeable reduction in the GST on all personal lines of products – from the existing 18% to 5% will encourage more people to buy health insurance. 

Currently, a policyholder can avail a tax exemption of Rs. 25000 deduction per financial year under 80D for buying a health insurance policy for self, spouse or dependent children.

This exemption can increase if the health insurance cover includes parents.

To help boost the overall health insurance penetration in the country and help millions of people access quality healthcare at an affordable cost, the increase in the limit of tax deduction in 80D can act as an incentive to ensure health insurance reaches the last mile, and to provide people long term financial security.

Tarun Chugh, MD and CEO, Bajaj Allianz Life Insurance
 
The industry is hopeful that the interim budget will introduce much-needed reforms to incentivise the purchase of insurance and enhance the industry’s efforts to increase insurance penetration within the country.
 
With a significant number of people heading towards retirement age in the next decade, incentivising the purchase of products in the pension category becomes crucial in this interim budget.

It is recommended that life insurance annuity or pension products be aligned with the National Pension Scheme (NPS). We also advocate for an additional deduction of Rs. 50,000 or more.

Additionally, similar initiatives will be required across our product categories, including pension products, ULIPs, and even traditional plans.

I believe customers will benefit from them and will have more reasons to invest in the industry for their long-term financial goals, thereby fuelling India’s development.

Parimal Heda, Chief Investment Officer, Digit General Insurance

IRDAI in November 2022 paved the way for insurance penetration in India by setting a mission of ‘Insurance for All by 2047’.

To achieve this objective, the upcoming Budget 2024 can introduce few tax benefits and exemptions to increase the uptake of insurance in India.

To increase the adoption of health insurance among people, one could consider increasing the Section 80D limit for health insurance.

This would motivate more individuals to get adequate health insurance coverage for them and their loved ones.

Additionally, the government may consider offering tax exemptions for first-time health insurance buyers.

Introducing an exemption under Chapter VIA for such individuals, allowing for a deduction of up to 200% of the premium paid, could serve as an initial step, subsequently transitioning the same to the threshold under Section 80D over a period of 3-4 years.

It is important to recognise the impact that outpatient treatments have on healthcare spending in India.

These services make up 60% of the healthcare expenditure.

Given their contribution, it is crucial to explore strategies to nudge insurers to offer better coverage for outpatient treatments.

One potential approach to achieve this goal could be considering the possibility of reducing the Goods and Services Tax (GST) rate on insurance premiums for insurance plans with OPD benefits.

Implementing such a measure could make OPD coverage more affordable and accessible, benefiting both insurers and the policyholders. 

Rakesh Goyal, Managing Director, Probus Insurance broker

The insurance industry advocates for a reduction in the Goods and Services Tax (GST) on insurance products, a move that would significantly benefit consumers across the nation.

The current 18 per cent GST rate is deemed excessively high, and anticipation exists for a revision.

Moreover, there's a call for greater flexibility for deductions from health insurance for personal use, family needs, and senior care.

Additionally, there is a business plea for distinct deductions within Section 80C of the Income Tax Act, particularly for insurance, a measure that holds promising potential for long-term business growth.

These proposed adjustments collectively aim to create a more favourable environment for both insurers and policyholders."

Satishwar B, MD & CEO, Aegon Life Insurance

Life Insurance 2024 – Exploring New Frontiers

2023 was not just another year in the archives of the life insurance industry; it was a year of groundbreaking achievements.

The industry, leveraging the power of artificial intelligence (AI) and other advanced technologies, transformed insurance from a complex necessity into a simple, accessible solution tailored to the diverse needs of the Indian populace.

Partly triggered by the COVID-19 pandemic, the Indian population too has become more aware of the need and urgency of buying a life insurance policy.

Life insurance companies have thus been growing steadily and contributing to the Indian economy. Tech innovations fuelled this growth and will sustain it in the years to come.

Budget Wishlist

Our journey towards 'Insurance for All by 2047' is marked by strategic steps, and certain recommendations for the upcoming budget could pave the way for growth and accessibility in the life insurance sector:

1. No taxation for annuity plans to benefit both retirees and the industry:

Many Indians don't save enough for retirement, and the gap between needed and available retirement funds is expected to reach $85 trillion by 2050.

To help close this gap, consider these steps:

Investing in pension and annuity products is crucial for income after retirement.

Making taxes simpler or removing them for these products will encourage more people to invest in these important financial protections.

Pension policies, like the NPS, provide a steady income in retirement.

It's important to lessen the tax load for people receiving pensions from the National Pension System (NPS), as the retirement fund gap is expected to increase a lot.

The current Rs 50,000 tax exemption for NPS under Section 80CCD(1B) should also apply to pension and annuity plans to encourage more people to use them.

2. Improving tax benefits to increase insurance coverage:

India faces a severe issue with inadequate insurance.

When a family's primary earner passes away, the money left for the survivors to live and settle debts is usually less than nine percent of what's actually needed.

- Separating savings for life and health:

Changing tax Sections 80C and 80D to provide separate tax breaks for the life-threatening risk part of life and health insurance payments, as well as for fixed-term insurance plans, could help close the gap in death risk coverage and enhance social security.

- Complete deduction for life insurance premiums:

Permitting individuals to deduct the entire amount paid for life insurance premiums from their taxable income, as stated in Section 56, without any decrease due to claims made under other sections such as 80C, will encourage more people to buy insurance.

This means they get the full tax benefit for their insurance premiums, making insurance more financially appealing.

3. GST reforms for wider reach:

Lowering the Goods and Services Tax (GST) on term life insurance and applying a 'Zero rating' –which means setting the tax rate to 0%— for certain essential policies like the Pradhanmantri Jeevan Jyoti Bima Yojana, smaller insurance policies covering up to Rs 2 lakh, and annuity products for National Pension Scheme subscribers.

By effectively removing the tax without sacrificing tax benefits for businesses, this policy aims to enhance financial security for more citizens.

A Collaborative Future Ahead

As we progress, the collective efforts of the life insurance industry, including Aegon Life, are crucial in shaping a more secure financial future for individuals across the nation.

With data enablement as the driving force behind this insurtech revolution, we can expect many more innovations soon.

Databases such as Aadhaar, Income Tax Portal, and Account Aggregator Network are already helping insurers with digital underwriting. The…

Shanai Ghosh, MD & CEO, Zuno General Insurance

The upcoming Budget 2024 carries significant importance, especially considering the IRDAI's vision of insurance for all by 2047.

Implementing policy measures will provide a boost to the industry's endeavours in this direction.

A relook at the 80D section, in terms of the raising the limit and revision in the CBDT’s family definition should be considered.

A forward-thinking step towards inclusivity would be extending this benefit to domestic partners, with a particular focus on supporting the LGBTQIA+ community.

We would also recommend the removal of the 5% GST on room rent exceeding INR 5,000, particularly in metropolitan areas where prevailing prices in major private hospitals are …

Mr. Vighnesh Shahane, MD & CEO, Ageas Federal Life Insurance

We have been asking the government to introduce a separate tax deduction limit for life insurance for the last 5 to 6 years but nothing has happened.

The reason is that the current Section 80C is too cluttered, where a person can claim deductions up to Rs 1.5 lakh for PPF, Sukanya Samriddhi Scheme, ELSS, tax saving fixed deposits, school fees, the principal sum of a home loan, including life insurance.

The other demands are to make pensions tax-free in the hands of annuitants.

The current Rs 50,000 tax exemption for the National Pension Scheme under Section 80CCD(1B) should also apply to the pension and annuity plans of insurance companies to provide a more level playing field.

Susheel Tejuja - Founder and Managing Director, PolicyBoss.com

1. Look forward to seeing greater tax relief in terms of exemption limits for high-value life insurance policies 

2. Look forward to greater impetus on Bima Vistaar and all channels/intermediaries be allowed to solicit this, ensuring maximum industry participation and greater penetration overall

3. ⁠Look forward to increase in tax limits u/s 80D, as Rs 25,000 premium ceiling has not changed with changing times and given the rate of medical inflation and growing cost of healthcare, increasing this limit will boost both growth and inclusion for all.

As we navigate the intersection of finance and technology, our expectations extend to incentives for insuretechs, ensuring the continued growth and resilience of digital solutions within the insurance industry."