Life insurance companies are eagerly awaiting the government’s decision on “composite licences” for insurers, allowing them to enter the health insurance business. If the “composite licenses” for insurers in the proposed amendment to insurance laws are allowed in the EU budget, many life insurers, including Life Insurance Corporation, will consider entering the health insurance business, sources said.
“We are monitoring the situation very closely in this regard. But I can’t tell you at the moment how to proceed. If the composite license idea works, then I think health insurance can fit into our business model,” said MR Kumar, chairman of Life Insurance Corporation.
Allowing compound licenses will be a positive move for the industry if implemented, he said at the annual CD Deshmukh Memorial Seminar organized by the National Insurance Academy.
“In the upcoming 2023 budget, we expect the finance minister to announce various measures for the health insurance sector. Access to health insurance can help ensure more people receive quality treatment and reduce the burden of out-of-pocket healthcare spending,” said Srikanth Kandikonda, CFO, ManipalCigna Health Insurance.
However, many general insurers and standalone health insurers have reservations about allowing life insurers to enter health insurance, the largest segment with total premium income of Rs 58,176 crore, up 22.54 per cent, during the eight-month period to November 2022. Non-life insurers, on the other hand, can enter mutual business enter the realm of life. A senior Treasury Department official said life insurers should move into health products in a big way.
The Treasury Department recently released the Insurance Laws (Amendment) Bill 2022 for public feedback, in which it proposed a number of changes to the insurance policy framework, including distribution rules, capital requirements and more. The government is likely to introduce this bill at the budget session. “These changes will significantly accelerate the growth of the industry and also support the government’s and regulator’s financial inclusion agenda. These proposed reforms will be a positive step to facilitate the adoption of last-mile insurance and bolster overall industry growth,” said Subhrajit Mukhopadhyay, Executive Director, Edelweiss Tokyo Life Insurance.
The Government has proposed a major change to the legal framework for the sector – Insurance Act 1938 and IRDA Act 1999 – intended to take the reform agenda in this segment to the next level, facilitating the entry of more players and a reduction in capital requirement and Issuance of joint permits. “Rising medical inflation has prompted many insurers to increase premiums on health insurance products this year,” said Krishnan Ramachandran, MD and CEO of Niva Bupa Health Insurance.
In an office memorandum, the Department of Financial Services at the Treasury said: “The proposal includes various methods such as opening up registration to different classes, subclasses and types of insurers with appropriate minimum capital requirements, as defined by the IRDAI. Services to insurers related to insurance business.” or related thereto, and distribution of other financial products as specified by IRDAI, enabling newer channels of distribution and providing efficient use of capital and resources.”
Insurers are also expecting tax breaks in the budget. Currently, all financial purchases are subject to the same IT deduction section (80C) capped at Rs. 1,50,000. “We understand the budget will consider creating a separate section for life insurance premium tax deductions. This will enable effective segregation of client funds into long-term and short-term kitties,” he said.
Given the low single digit penetration of life insurance in India, tax incentives are expected to be focused on primary insurers and on the main component of retirement income. Special incentives are also likely to be announced for women, who currently account for little more than a third of the country’s life insurance coverage.
“We expect the government to propose a range of measures to boost this sector in the upcoming budget and are therefore considering a 5 per cent GST tax on the health insurance premium to make it more affordable for middle-income people to have access to quality health care get what they need,” Kandikonda said, adding that cutting the GST rate from 18 percent to 5 percent of health insurance premiums will be a big respite, especially for seniors who are struggling to meet rising healthcare costs. Most insurance products attract a GST of 18 percent, bringing the premium to 118 percent for the end user.