Creating an environment for insurance growth

From an insurance perspective, this Budget was one where what was said was as important as what was left unsaid.

There were a few important announcements, specifically the objective of increasing foreign direct investment in the sector. For insurers, the government will evaluate FDI norms this year. Life, general and health insurance, all require large amounts of capital for growth, and foreign insurers want to increase their ownership from the current 49 per cent.

For insurance intermediaries such as brokers and web aggregators, an FDI increase from 49 per cent to 100 per cent was announced. Since international insurers and pension funds are a major source of capital, the changes to facilitate foreign portfolio investment will result in these companies taking a deeper interest in India. The combined effect is likely to be higher private sector investments, resulting in deeper insurance penetration and a wider set of products. Policyholders will benefit.

Reducing the threshold for reinsurers to open branches in the International Financial Services Centre (IFSC) and the thrust to onshore international transactions fits into the overall scheme of bringing capital into the country.

These financial transactions together run into billions of dollars and even if a small part were to come into India, it could have a sizeable impact. However, there may not be a direct impact on the insurance products you buy.

Debt market

There is an intention to build a deeper long-term debt market. This has been an issue for insurers for over a decade now. The fact that most debt paper is short term whereas insurer liabilities are long term exposes insurers to an asset-liability mismatch that increases their risk and, eventually, translates into more expensive products.

More long-term debt will result in better investment returns and, perhaps, even long-term guarantees. The objective of establishing a universal social security scheme, announced in 2015, is being taken forward through the inclusion of 30 million small traders into a pension plan.

Some announcements listed out in the detailed notes include an increase in the tax-exempt portion of the corpus in NPS schemes from 40 per cent to 60 per cent, an attractive offer. The GST on third-party premiums for good carrying vehicles was reduced from 18 per cent to 12 per cent, which will help transport owners marginally. Finally, the method of deducting tax on the taxable portion of a life insurance policy was changed. This may result in higher tax deducted at source.

Better governance

The two regulatory changes announced imply that the government would like better governance to avoid conflict of interest in regulatory bodies.

The NPS trust will now have an arm’s length arrangement with the Pension Fund Regulatory and Development Authority. Similarly, the regulatory aspect of managing the real-estate sector will be transferred from the National Housing Board to the Reserve Bank of India.

The budget was relatively silent in many areas. There was no comment on tax exemptions and schemes for insurance. Familiar words such as Section 80C, 80D, 80DDB and 80CCC found no place in the speech though they were listed in the detailed notes. The message here is that the government does not want to make frequent changes.

There was just one passing reference to Ayushman Bharat, the health-care programme and no mention of government insurance schemes such as the Pradhan Mantri Jeevan Jyoti Bima — a term insurance — and Pradhan Mantri Suraksha Bima Yojana — a personal accident cover; and crop insurance.

This is probably because the overarching framework for these schemes has already been defined and the pressing need is to drive implementation and extend their reach.

There are a few insurance-specific areas that have been neglected for long. These include fairer tax treatment of annuities by not treating them as income, a stronger insurance approach to dealing with catastrophes and making home insurance mandatory in vulnerable areas.

The writer is co-founder, www.securenow.in