Budget 2015: Here’s what Govt can do to promote insurance products in India

Players in the insurance sector may have high hopes from the upcoming Union Budget 2015. After all, soon after taking charge the government had decided to raise the FDI cap from 26% to 49%.

“The expectations from Union Budget 2015 are quite high, given that public-private sector as well as people at large expects the BJP-led government to ensure that India is on a high-growth trajectory. The mood of the insurance sector has been on an upswing ever since the ordinance bill increased the limit of FDI in insurance from 26% to 49%,” said Alok Bansal, co-founder and CFO of PolicyBazaar.com.

However, not all is hunky-dory at the consumers’ end. Insurance, as an investment option is considered to be a tricky business. Most consumers find it hard to trust an insurance company and often have issues while buying an insurance product.

“Currently an insurance buyer has to undergo a lot of paperwork. E-policies and E-claim process can go in a long way to bring them under one umbrella of financial inclusion. This will also bust the mental block that insurance is a complicated process and it is best to stay away from it. A common KYC, in fact an electronic KYC has the potential to revolutionize the financial inclusion plan,” added Bansal.

Besides, the Government needs to reform the tax policies for insurance products such as pensions and annuities, in order to make it an attractive option among the insurance buyers.

It should be noted that while planning one’s retirement, pensions and annuities are a less preferred option among the many available security instruments. This is so because the current tax doesn’t allow huge returns on the annuity offered by the insurance companies.

“One of the important customer needs which drives savings behaviour is retirement planning. This becomes even more important in a country like India because of increasing life expectancy and inadequate social security measures. Insurance industry plays a very important role through pension and annuity products,” said Deepak Mittal, managing director and CEO of Edelweiss Tokio Life Insurance Company Limited.
Apart from making pensions and annuities attractive options, the government could also relook its tax policies for life insurance product. Life insurance has increasingly become unattractive as the tax benefits offered on these policies are available only in cases where the sum assured to premium ratio is at least 10.

“While this provision was made with the intention to increase the cover provided by life insurance companies, it also ends up making the policies unattractive for middle and higher age groups given that there is an exponential rise in the cost of mortality in later years. We look forward to some relaxation in these guidelines either in form of tax benefits linked to the tenure of the policy or lower multiples for higher age customers,” stated Mittal.