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Tax sops may boost sagging insurance sector in 2013

New Delhi, Dec 25: The long-pending Bill seeking to raise FDI limit to 49 per cent in insurance business remained stuck in 2012, although going ahead the sector may see some action with the government

PTI [ Updated: December 25, 2012 14:13 IST ]
tax sops may boost sagging insurance sector in 2013
tax sops may boost sagging insurance sector in 2013

New Delhi, Dec 25: The long-pending Bill seeking to raise FDI limit to 49 per cent in insurance business remained stuck in 2012, although going ahead the sector may see some action with the government expected to extend tax sops to boost the sagging industry. Prodded by finance minister P Chidambaram, the tax authorities and insurance regulator Irda are working on the possibility of removing service tax on first premium and create separate exemption limit for pension schemes.

A slew of incentives being considered by the Finance Ministry may provide the much-needed booster dose to the life insurance industry.

The Department of Revenue is examining whether, in addition to NPS, some insurance pension products - as approved by Irda - may be included in the separate limit over and above the limit of Rs. 1 lakh under section 80C of the IT Act for the purpose of income tax deduction on the premium paid.

Besides, the department is looking into the proposal of exempting annuity policy from service tax in line with National Pension Scheme (NPS) and may reduce the levy on single premium products.

The CBDT is considering whether the total sum paid for post-retirement medical scheme could be made eligible of income tax deductions.

The announcements by the finance minister are expected to stimulate the growth of the sector.

"I am sure all the draft guidelines will be finalised in the first quarter of the year. I am also confident that 2013 will see the collaborative efforts to grow the life insurance sector gaining further strength. This will result in a clearly laid out roadmap for the sector," Max Life Insurance managing director Rajesh Sud said.

Echoing similar views, Reliance Life Insurance, president and executive director Malay Ghosh said: "We hope to see several enabling regulations, as mentioned by the finance minister, in the next few months to drive stable growth for the industry in the coming years."

The key initiatives expected by the industry include bancassurance, open architecture, use and file product approval process and simplifying agency licensing process.

During 2012, the Cabinet approved the much-delayed Insurance Bill, for approval and passage in Parliament so that foreign investors can pump in more funds into the capital intensive sector.

The government had introduced the Insurance Bill in the Rajya Sabha in December 2008 to improve and revise laws relating to the sector in the wake of private participation.

The insurance amendment Bill is an omnibus legislation to change parts of three Acts: Insurance Act, 1938; Insurance Regulatory and Development (Irda) Act, 1999, and General Insurance Business Nationalisation Act.

In order to ensure that life insurance products are designed by companies to meet best interest of policyholders, Irda is working on draft guidelines on the subject. The regulator is expected to come out with guidelines soon.

Besides, the regulator issued draft norms for initial public offering (IPO)- Irda (Issuance of Capital by General Insurance Companies) Regulations, 2012.

As per the draft norms, the regulator will take into account the insurer's financial position, its capital structure and regulatory record before the share sale.

In order to ensure solvency of insurance companies, Irda introduced a uniform asset-liability management norms and asked them to take stress test to ascertain their ability to meet financial obligation in the event of a crisis.

The Asset-Liability Management (ALM) norms, Irda said are "critical for the sound management of the finances of the insurers that invests to meet its future cash flow needs and capital requirements".

Ghosh said, meanwhile, that challenging times continued for the industry this year, with insurers trying to adjust to the new regulatory framework.

Though the industry premium levels are still lower than last year; the decline seems to have plateaued, he said.

The life insurance industry recorded a premium income of Rs. 2,87,072 crore during 2011-12, as against Rs. 2,91,639 crore in the previous financial year, down 1.57 per cent.

At the same time, premium collected by life insurance companies dropped 3.45 per cent in the April-October period due to various factors that are influencing the financial sector as a whole.

The premiums collected by 23 private sector companies and lone state-owned LIC totalled Rs. 53,814.09 crore during the period. They together had collected Rs. 55,737.84 crore in the April-October 2011 period.

Despite slowdown in the industry during the year, new player entered the field, with Irda giving approval to three general insurance companies -- Magma HDI, Liberty Videocon General Insurance and Religare.

Besides, two other existing life insurance companies witnessed change in the shareholders. In case of Max Life Insurance, New York Life of the US existed while Punjab National Bank picked up 30  per cent stake in the Metlife.

There are 52 insurance companies operating in India; of which 24 are in the life insurance business and 27 are in general insurance business. In addition, GIC is the sole national reinsurer.

Of the total, 8 are in the public sector - two are specialised insurers, namely ECGC and AIC, one in life insurance namely LIC, four in general insurance and one in reinsurance. The remaining 44 companies are in the private sector.
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