After ushering in the new year, establishments across the country are eagerly eyeing the much-awaited Union Budget that will be presented on February 1, 2023. Each sector has its own set of expectations that will provide them with the needed impetus for growth.
The year 2023 is expected to be transformative for the Indian insurance sector, with the anticipation that the Budget will further build on the regulatory changes introduced by the Insurance Regulatory and Development Authority of India (IRDAI), the insurance regulator, in December 2022.
While the insurance sector has lately emerged as a vital contributor to the Indian economy, its share of GDP continues to be abysmally low at 4.2% in FY 2021. Moreover, India continues to be amongst the lowest rankers on insurance coverage, with only 41% of Indian households having at least one member with health insurance. The industry is anticipating that Budget 2023 will transform the Indian insurance industry just as Budget 1991 transformed the Indian economy and set the motion to achieve ‘Insurance for all Indians’ by 2047.
Insurance enables one to hedge risk and aids national development by making much-needed financial resources available to various industries. The past few years have witnessed the Indian government taking various initiatives to spread awareness and increase insurance penetration among the general public.
Besides, the outbreak of the pandemic was a wake-up call for people to invest in insurance, propelling further growth in the sector. This expansion has ignited insurers to work on offering innovative products, explore unique distribution models and invest in technology to strengthen their presence in the market. Around 4 Lakh people were employed in the Indian insurance sector as of 2020, of which 29 Lakh are agents. With the implementation of reforms, the industry can easily employ an additional 10 Lakh people in the next three years.
This article delves deeper into the insurance sector wishlist from the Budget 2023.
Insurance Industry Wishlist From Budget 2023
- The introduction, passage and implementation of the ‘Insurance Laws (Amendment) Bill 2022’ will bring the necessary reforms and propel growth in the sector.
- Currently, an insurance company needs to have INR 100 Cr as a minimum paid-up capital to start a business. The government should ease the minimum capital requirement, opening the sector for newer and more innovative companies that can solve specific insurance use cases. This will increase competition in the industry and benefit customers, making it a win-win situation for both.
- Currently, all insurers must have a minimum solvency ratio of 1.5, irrespective of their actual risk profile. This requirement should be discontinued, and the regulator should move towards a risk-based solvency or capital adequacy system and a risk-based supervisory mechanism. This will enable more efficient capital utilisation and financial risk management among insurers.
- 2023 can also be the year when the government implements the much-awaited composite license regime wherein insurance companies can sell multiple insurances through one license. Currently, insurance companies need separate licenses to sell general, life or health insurance products. Introducing the composite license will result in high competition across insurance categories and product innovation and enable insurers to cross-sell and utilise their distribution network more efficiently.
- Increase Tax Deduction at Source (TDS) exemption limit on insurance commission from the current level of INR 15,000, providing more cash in hand to insurance agents.
- Implement a higher Income Tax deduction limit in lieu of premium paid towards health insurance. Currently, the deduction limit is upto INR 75,000. This will ignite a surge in demand and pull from customers.
- The industry expects a reduction in the current 18% GST applicable on insurance premiums to 12% or even lower at 5% or Zero GST. Protection products need to become more affordable for the masses to increase insurance penetration in the country. The insurance industry enables national economic growth by reducing the overall financial risk in the system and making financial resources available for development purposes. It should not be treated as just another revenue source.
The insurance sector in India is expected to become the sixth largest in the world over the next decade. This growth will be propelled by rapid economic expansion, government and regulatory body initiatives and offering people tax benefits on buying insurance. The insurance sector is anticipating positive changes, and the government must act now to provide the sector with the wings it desperately needs.