Opening up more
Capital requirement in standalone cos may be reduced to Rs 50 crore.
Deduction permitted under Section 80-D may be hiked to Rs 20,000.

Sarbajeet K. Sen

New Delhi, Feb 26

Insurance reforms could well be one of the predominant flavours of the forthcoming Union Budget. On February 28, the Finance Minister, Mr P. Chidambaram, could signal the second big phase of the insurance reforms by announcing his intent to introduce a Bill in Parliament to overhaul the insurance laws that could pave way for a higher cap on foreign direct investment (FDI) in the sector and lower capital requirement for the stand-alone health insurance companies.

Source said there have been indications that the Government would also provide a major push to health insurance by allowing a higher deduction from the total income of an assessee for amounts put in for taking out health cover.

Indications are that the deduction permitted could be raised to Rs 20,000 from the present Rs 10,000 under Section 80D of the Income-Tax Act.

Mr Chidambaram during his Budget speech of July 8, 2004, had announced his intent to increase the FDI cap in insurance from the present 26 per cent to 49 per cent.

However, the issue has been pending for some time now with the Left parties fighting tooth and nail the move to hike the FDI cap.

The Government, too, had been going slow on the issue since unlike other sectors where an executive order is enough to alter the FDI regime, a hike in the insurance cap would require an amendment in the Insurance Regulatory and Development Authority (IRDA) Act.

Moreover, with various provision of the insurance laws having been found to be outdated and not suited for the present liberalised set up, the Government has been working on an Omnibus law that would address all the infirmities.

There have also been problems in the health insurance sector with no one willing to float stand-alone companies offering health cover with the present minimum capital requirement of Rs 100 crore.

Sources said that the Government was considering bringing down the capital requirement for the stand-alone health companies to Rs 50 crore.

Health insurance, that is currently being offered by general insurance companies, is seen a sector that hold huge potential in the days to come.

Industry officials said that the segment could witness a major boost if proper incentives are given to people to put money to take out a health cover.

The potential that health insurance holds can be gauged from the fact that Life Insurance Corporation of India (LIC) has recently said that it would want to start a company exclusively offering health cover though with a lower capital requirement.

Related Stories:
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Profit from sale of investments may soon be tax-free for general insurers

(This article was published in the Business Line print edition dated February 27, 2006)
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