While there are many expectations of the insurance sector, one broad paradigm shift could be in the way healthcare and health insurance is designed, distributed and delivered across India. Here are some of the key demands that the insurance sector has.
Time to get pragmatic on GST on insurance
The year 2020 has proved that if food, clothing and shelter are basic necessitates, proper healthcare and social security is equally important. It is, therefore, difficult to understand why insurance premiums are charged GST at the peak rate of 18%. The GST rate of 18% is understandable for fire insurance or marine insurance which are corporate products. However, life covers and health covers deserve preferential treatment.
Health insurance and basic life covers must be slotted as essential items and the GST must be cut from 18% to 5% to make these products accessible and affordable. Health insurance is not only about health security but also about access to quality healthcare and that has to be done at a reasonable cost. One big expectation is that all forms of personal risk reduction products for individuals must be reduced to 5%.
Increase limits under Section 80D for health premiums
In the last few years, the government has surely raised the exemption limit under Section 80D for health insurance multiple times. The current levels of deduction are Rs25,000 per fiscal year for families and an additional Rs50,000 if parents are senior citizens. While this exemption can go up to Rs100,000, normally the best case scenario is Rs75,000.
However, with the rising cost of healthcare there is a need to take larger health covers and that means higher premium. One thing the Budget can do is to offer an overall limit of Rs100,000 without any sub-limits. This will enable purchase of bigger health covers based on needs.
How about a dedicated life insurance exemption?
Currently, there is an exemption that is available for premiums on life insurance up to Rs150,000 under Section 80C. However, this is a composite limit and includes PPF, CPF, ULIPs, principal on home loan, tuition fees, NSC etc. People in the middle and upper middle income groups use about 3-4 times these limits and that does not given any benefit.
Here is a way out. The Budget can look at two options. One is to give a dedicated Rs100,000 exemption limits for life insurance and ULIPs put together. The other option is to enhance the overall limit of Section 80C from the current Rs1.50 lakhs to Rs2.50 lakhs. That would incentivize more people to invest in their future security.
Budget must take a serious look at healthcare financing
COVID-19 proved that there was an imperative need for healthcare access that is affordable, predictable, high-quality and simple. An important lacuna in the Indian healthcare system is the absence of quick healthcare financing. Lack of health insurance can make it difficult for patients to get the healthcare they need. One key focus area can be a combination of easy access to health insurance and easy access to funding to handle health emergencies.
Incentivize insurance companies for semi-urban penetration
The pharma companies get encouragement in the form of breaks for the R&D expenses undertaken so that there is investment in IP creation. In the insurance sector, the budget must come with innovative means for strengthening the sector by building insurance accessibility for consumers. Tax breaks address the consumer side; not the supply side.
Like mutual fund distributors get special incentives for distributing in non-urban centres, a similar kind of a model can be envisaged and implemented in the insurance sector also. The government can also look to incentivise insurance companies that achieve this kind of priority sector insurance objectives. That can go a long way in giving insurance a push.
Finally, it is time develop a long term bond market
Yes, we are referring to a 40-50 year bond market where insurers can raise long term funds at attractive terms. Globally, insurance companies managed to grow exponentially on the back of easy access to cheap, long-term funds. For that the corporate bond market needs to be fine tuned but it is worth the effort. The market should be robust enough so that the creditworthy insurers can raise long-term funds at reasonable yields.
Of course, there are more ideas for insurance like increasing the FDI from 49% to 74%, but the most important thing in this Budget is to make the right start. COVID has just given that opportunity to take a serious re-look at attacking the under-insurance problem in India.