The insurance industry’s growth and success are directly proportional to the growth of the economy. The industry is also affected as and when there are any changes to a particular sector like auto or ecommerce. There is an overall slowdown in economy with the degrowth in auto sector. This has resulted in slowdown in non-life Insurance premiums as well.
The finance minister could announce measures to stimulate the economy by addressing specific sectors. Some of the measures that the industry is expecting is a cut in Personal Income tax, GST rate cuts in the auto sector, increase in tax sops to boost housing sector etc. Such measures would revive consumer sentiments and positively affect the demand and consumption domestically, resulting in higher sales in auto and other sectors. This would help the improve sales of non-life Insurance products.
Awareness of importance of Insurance
Further, as long as the going is good,there is anoptimism bias among Indians where consumers don’t feel the need for any Insurance protection. Purchasing any kind of Insurance is still looked at as a cost rather than a protection from adverse financial situation. This has resulted in lower penetration of Insurance, despite a lot of measures announced by the government as well as the regulator. The general insurance sector has a shocking 1% penetration in India.
To increase the penetration of non-life insurance, the government could look at offering more tax benefits, include more products under mandatory insurance cover and roll out more mass Insurance schemes. Standardization of policy documents across various Insurance products like Health/ Home Insurance could help in better understanding of insurance products.
Protecting your Assets like your home
Purchase of property or owning your own home is a dream come true for most of us. But in the current climate conditions, there is a likely chance of this dream to get washed away in a nature’s wrath. In recent times, we have witnessed quite a few natural calamities, resulting in property losses for the un-insured. Making home insurance mandatory at the time of purchase of the property or giving special rebate (similar to health Insurance) for Insurance of houses could incentivise people to buy Home Insurance. Additionally, the government could roll out a mass product scheme similar to its flagship programs like PMJSBY, PMFBY etc. for compulsory Home Insurance under affordable housing.
The government may also revisit the Income tax deductions available under Section 80D for health Insurance and could revise the same upwards. Given the ever-increasing medical costs, the finance minister could announce a higher tax rebate under Section 80D from current INR 25000 to INR 50000 for self and for dependent parents (age above 60 yrs.) to INR 75000 from INR 50000. Also, the government could make health insurance mandatory for all employers in the un-organised sector as well.
Reducing Insurance related GST
Further, currently the insurance premiums are taxed at a GST rate of 18% which increases the cost to purchase any non- life insurance. Given that the purchase of such a policy is not done for investment purpose, the government could either lower the applicable GST rate for Insurance premiums or could exempt it for policies with a minimal cover or for policies issued under the flagship Insurance programs like PMFBY. While GST is not under the purview of the budget but the finance minister could subsidise the payment of GST under its flagship schemes like PMFBY or for mandatory Insurance products.
Views expressed in this article are a personal opinion of Parimal Heda – Chief Investment Officer – Digit Insurance.