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Life insurance companies are keenly awaiting the government’s decision on ‘composite licences’ for insurers which will allow them to enter the health insurance business. If the ‘composite licences’ for the insurers are allowed in the proposed amendment in the insurance laws in the Union Budget, many life insurers, including the Life Insurance Corporation, will consider entering into indemnity health insurance business, sources said.
“We are watching the situation very closely on this. But I can’t tell you at the moment how things pan out going forward. If the idea of composite licence works, then I think health insurance can fit into our business model,” said MR Kumar, chairman, Life Insurance Corporation.
Allowing composite licenses is going to be a positive step for the industry in case it is implemented, he said at the annual C D Deshmukh Memorial Seminar organised by National Insurance Academy.
“In the upcoming Budget 2023, we do expect the Finance Minister to announce various measures for the health insurance sector. Access to health insurance can help more people get quality treatment and reduce the burden of out-of-pocket healthcare expenses,” said Srikanth Kandikonda, CFO, ManipalCigna Health Insurance.
However, many general insurers and standalone health insurers have reservations about allowing life insurers to get into the health insurance, the largest segment with a total premium collection of Rs 58,176 crore, a rise of 22.54 per cent, during the eight-month period ended November 2022. General insurers, on the other hand, will be able to enter the life segment in the reciprocal arrangement. A senior Finance Ministry official said life insurers should venture into health products in a big way.
The Finance Ministry recently released the Insurance Laws (Amendment) Bill 2022 for public feedback, wherein it has proposed a score of changes to the insurance policy framework including the distribution rules, capital requirements and more. The government is likely to introduce this Bill in the Budget session. “These changes will significantly accelerate the growth of the industry and also support the government as well as the regulator’s financial inclusion agenda. These proposed reforms will be a positive step in facilitating insurance adoption at the last mile and bolster the overall sectoral growth,” said Subhrajit Mukhopadhyay, Executive Director, Edelweiss Tokio Life Insurance.
The government has proposed a comprehensive amendment of the legislative framework governing the sector – Insurance Act 1938 and IRDA Act 1999 – which is expected to take the reform agenda in the segment to the next level, facilitating the entry of more players, reduction in the capital requirement and issue of composite licences. “Rising medical inflation has resulted in many insurers increasing the premium on health insurance products this year,” said Krishnan Ramachandran, MD and CEO at Niva Bupa Health Insurance.
In an office memorandum, the Department of Financial Services in the Finance Ministry, said, “the proposal includes various methods such as opening of registration to various classes, sub classes and types of insures with appropriate minimum capital requirements as specified by the IRDAI, allowing services to insures that are incidental or related to insurance business as well as distribution of other financial product as specified by the IRDAI, enabling newer channel of distributing and providing for efficient use of capital and resources.”
Insurers are also expecting tax breaks in the Budget. Currently, all financial purchases are clubbed under the same IT deduction section (80C) capped at Rs. 1,50,000. “We expect the budget to consider creating a separate section for tax deduction on premium paid towards life insurance. This will enable an effective segregation of customer’s funds into long-term and short-term kitties,” he said.
Considering the low single-digit penetration of life insurance in India, tax incentives can be expected to be focused on first-time life-insurers and on principle component of annuity income. Special incentives are also likely to be announced for women who currently account for barely more than one-third of the country’s life-insurance covers.
“We expect that the government in the upcoming budget comes up with a series of measures to boost this sector, thus considering 5 per cent GST tax slab on health insurance premium to make it more affordable for the people living in the middle-income group to get access to quality healthcare care they need,” Kandikonda said, adding that GST rate cut from 18 per cent to 5 per cent on the health insurance premiums will be a huge respite especially for senior citizens who are struggling to meet the rising healthcare costs. Most insurance products attract GST at 18 per cent which pushes up the premium to 118 per cent for the end-user.
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