Union Budget: India finds itself on a financial precipice-GDP growth has stalled, jobs have shrunk and factories are struggling to stay open. As industries across the board struggle to stay above water, India's insurance sector might get dragged into this maelstrom and needs a firm guiding hand from the finance minister to steer it to safety.
A key requirement for this sector is capital and in an environment where Indian promoters find their resources squeezed by a tough economy, the government must consider liberalising India's FDI norms to bring in much-needed liquidity.
While the top tier is sitting comfortable, there is a looming danger of the laggards being hobbled and even going under in these rough times.
With a nuanced yet liberalised FDI policy, the finance minister can bring much-needed capital into this sector. For foreign entities used to operating in comparatively low-interest environments, the opportunity to do business in a market which is growing rapidly and hold promise for the future is too tempting to pass up.
The government and the regulator will have to strike the right balance between securing the interest of policyholders and liberalising FDI norms.
FULL COVERAGE: Union Budget 2020
On the issue of taxation, while section 80 related deduction has been a pressing demand from the industry to catalyse further penetration, the budget could also delve deeper and provide clarity on some technical provisions of the IT Act relating to insurance, for instance, the grandfathering of Section 55(2) relating to capital gains or amendments to rule 6E of IT Rules relating to Unexpired Premium Reserve (UPR) and Incurred But Not Reported reserve (IBNR).
This will be a progressive step towards ascertaining the true and fair position of the financial state of the insurers.
Further, thinking towards the future, FM Sitharaman can consider steps towards drawing tax parity across investment instruments, be it insurance compared to pension products and even mutual funds.
Structurally, the government has already taken one bold step to try to strengthen the foundation of India's insurance sector with the merger of three public sector general insurance companies.
This merger seems to now be proceeding after a brief hiatus and once the process gathers steam, the government should show its commitment by providing a clear path for capital raising for this entity, to send the right signals to the market. If done right, this merger can trigger a whole bunch of initiatives, yielding positive returns for all the key stakeholders-industry, shareholders and customers.
On the state-run program, Ayushman Bharat is a positive step that has seen initial success and further allocation will help expand the reach of health insurance in India holistically with improved infrastructure.
On the other hand, the agricultural insurance schemes have struggled for traction with some insurers unwilling to participate due to unviable premiums as well as farmers contending claims settlement as an issue.
Similarly, under the Jeevan Jyoti Bima scheme, insurers are finding it difficult to underwrite something that makes little financial sense for them, which means LIC alone is left primarily carrying the can for this segment. It will be interesting to see the allocations announced in the budget for these schemes as also, the enabling provisions to drive success.
Another vulnerable segment that could benefit from a small change is senior citizens. India's senior citizens have been disproportionately struggling with skyrocketing health care costs, but tax deductions on health insurance remain the same as for other age groups. FM may take a considerate view and allow for a preferential treatment to this segment.
A topic that has occupied significant mind space in the recent past is that of deposit insurance. While this is currently administered by the Deposit Insurance and Credit Guarantee Corporation, progressive structural steps are required towards ensuring a basic acceptable level of protection while allowing choice for enhancing coverage. Enabling announcements in that direction are welcome.
The Indian insurance industry is at an inflection point from where it is poised to grow manifold on the back of solid foundation, projected economic growth and higher disposable income.
With this kind of opportunity ahead for the sector, focussed proactive measures in Budget 2020 will help take India's insurance industry to the next phase of progress.
(The author is Head of India, Willis Towers Watson)
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