The purpose of insurance is to mitigate risks that individuals and companies face. This objective has never been more important than now because the slowing economy makes us vulnerable to adversity. However, insurance is falling short of its enormous potential because of underinsurance ― not enough people buy all the insurance they need, and those that do, buy in small amounts.

So, an ideal Budget from insurance’s perspective, would have stimulated the sale of life and health insurance to segments such as women, small towns and micro, small, and medium enterprises (MSME); encouraged the distribution of relatively under-penetrated categories such as home insurance, catastrophe insurance and pension; and incentivised those already buying insurance to increase their sum assured, specifically death cover in life insurance and indemnity limits in health.

These areas have not been directly addressed in the Budget. In fact, the immediate impact of some of the current Budget proposals may be counter to the objective of reducing underinsurance, specifically the intention to phase out tax exemptions.

It is agreed that the tax incentives are cumbersome and must be streamlined. However, many buy insurance just because it is tax-incentivised. This is a case where the end justifies the means. Tax incentives, delivered through various sections such as 80C and 80D, drive individual insurance sales. This is why a high proportion of insurance sales takes place at the end of a fiscal year as taxpayers rush to meet the incentive deadlines. In the current Budget proposal, taxpayers have been provided an option to pay lower tax rates and do away with these exemptions. However, an alternate incentive to buy insurance has not been created. If the incentives are completely done away with in a few years, as the finance minister indicated, it will remove a major raison d'être for insurance purchase. Both, the individual buyers and the industry both suffer. This change to a no tax-incentive regime will take time because the government has given an option to continue with the previous tax regime that had incentives. Many will prefer that. Effectively, this gives the government room to think through measures that stimulate insurance purchases.

Investment into the Ayushman Bharat health scheme remains relatively unchanged and the emphasis is to be on creating hospital capacity in certain districts. This scheme, when fully implemented, will have a material impact on the health of the poor. The issue of hospital capacity must be comprehensively addressed. Several existing providers are not joining the scheme because the treatment rates offered are too low. This must also be looked into so that the scheme is viable and scales up faster.

The increase in deposit insurance from ₹1 lakh to ₹5 lakh will improve depositor confidence. The premiums for this insurance are paid by the banks and they may decide to pass on the cost to the customers. In any event, this is a small cost for the security it gives. In fact, the Deposit Insurance and Credit Guarantee Corporation (DICGC) should allow depositors to enhance the cover to over ₹5 lakh by paying the additional premium cost.

Implementation of the NIRVIK scheme (that provides for high insurance cover, reduction in premium for small exporters and simplified procedures for claim settlements) will be streamlined. This scheme benefits banks and encourages them to lend to MSMEs in export-oriented segments. It is a good move because liquidity increases. However, an equally pressing requirement, is to facilitate trade credit insurance for small companies that operate in the domestic market. Smaller companies find it difficult to buy such insurances.

Listing LIC will benefit policyholders because the financial results will be more transparent and this systemically-important company will be scrutinised with the high standards of the public markets.

Over the next few months, much more needs to be done for insurance. There has been a request to lower the GST rates to below 18 per cent. If this happens, it could partially offset the impact of eliminating direct tax incentives. FDI in insurers has yet to be increased to 74 per cent, annuities for pension continue to be taxed at maturity which makes them unattractive. The government should consider making home and catastrophe insurance mandatory, particularly in flood and earthquake prone zones.Reducing insurance under-penetration through such measures can be a strong pillar for economic growth.

(The author is Co-founder of www.securenow.in)

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