Budget 2020: Encourage first time buyers to go for insurance

By Divyanshu Tripathi

The online players and insurance companies will and are playing their part in coming up with products, increasing awareness and making the buying and servicing experience better. But, to have a substantial impact on bridging the protection gap, a lot is expected from Government to incentivize getting protected. Dedicated government focus on bringing more people under the ambit of life, health and general insurance is the need of the hour and industry is expecting the government to look in that direction.

While sharing his budget recommendations, Divyanshu Tripathi, CEO & Co-Founder, Easypolicy, says “There could be some measures taken to encourage first time buyers to go for insurance. Women especially could be incentivized. In 2018-19, women bought 103 lakh life insurance policies and contributed Rs 36,525 crore of premiums (individual life insurance new business). Introducing separate deduction for first time life insurance buyers and an additional capping for someone purchasing a pure protection (term) plan will put life insurance on fast track. Relaxation of section 10(10)(D), where minimum sum assured is required to be 10 times of annual premium would be a desirable move. Lowering rate of GST will be beneficial for both policyholders and companies. The removal of GST will reduce the cost of a policy, making insurance affordable for individual policyholders. Besides, if we look at the private banking sector in India, it is subject to a 74% FDI cap. This could be extended to the rest of financial sector bringing insurance under its ambit. This would open up new avenues for insurance companies to infuse more capital and hence, improve penetration.”

The Indian Insurance industry witnessed positive growth in the last decade. Aided by policy reforms, new regulations, adoption of technology, growth of online products and web aggregators, the insurance industry is poised to take a big leap to close the vast protection gap that exists in the country. According to the latest Insurance Regulatory Development Authority of India (IRDAI) annual report, India’s life insurance penetration in 2018 is 2.74 per cent, non-life is 0.97 per cent and the overall industry is 3.70 per cent.

However, one of the basic challenges in the sector is that awareness and understanding of insurance products are still very low in the country. The ‘aware’ segment is clustered in metros and Tier 1 cities. With the coming of online products, the awareness is increasing coupled with the fact that India’s workforce is increasingly getting younger with better incomes along with better online presence. Resultantly their knowledge about access to online insurance products comes handy not just for their personal requirements but the entire family. With the increasing penetration of the internet, it is expected that 840 million people would be digital by 2021.

The online players and insurance companies will and are playing their part in coming up with products, increasing awareness and making the buying and servicing experience better. But to have a substantial impact on bridging the protection gap, a lot is expected from Government to incentivize the insurer and insured.

In view of the market changes in the industry and how the industry is poised at the moment, there are many positive steps, which the industry is expecting from the government to be introduced in the budget.

Below are a few steps put together by Divyanshu Tripathi, CEO & Co-Founder, Easypolicy, that the industry players feel would prove great boosters and improve penetration by leaps and bound.

• Dedicated government focus on bringing more people under the ambit of life, health and general insurance is the need of the hour and industry is expecting the government to look in that direction.
• There could be some measures taken to encourage first-time buyers to go for insurance. Women especially could be incentivized. In 2018-19, women bought 103 lakh life insurance policies and contributed Rs 36,525 crore of premium (individual life insurance new business)
• Introducing separate deduction for first-time life insurance buyers and an additional capping for someone purchasing a pure protection (term) plan will put life insurance on the fast track.
• Relaxation of section 10(10)(D), where the minimum sum assured is required to be 10 times of annual premium would be a desirable move
• Natural calamities like floods, cyclones have caused immense losses to most of the dwelling units and their contents. If the building along with the contents of the house is protected with adequate home insurance, the financial burden will be reduced for the owners. With calamities increasingly affecting urban areas as well, people would be very willing to opt for such products. Coupling them with separate tax exemption to an extent would again pump impetus to the sector.
• Lowering the rate of GST will be beneficial for both policyholders and companies. The removal of GST will reduce the cost of a policy, making insurance affordable for individual policyholders.
• Another not much touched upon area is the FDI cap. The existing foreign direct investment (FDI) cap of 49% applies to the entire insurance sector in India. The government announced earlier that FDI of up to 100% will be permitted for insurance intermediaries. This change does not apply to the remainder of the insurance sector.
• If we look at the private banking sector in India, it is subject to a 74% FDI cap. This could be extended to the rest of the financial sector bringing insurance under its ambit. This would open up new avenues for insurance companies to infuse more capital and hence improve penetration.
• The Budget could encourage investors who want to save for their children’s education by providing tax benefits to saving instruments.
• Separate deduction for term insurance plans could be a very positive move and also improve tax savings for the people and the savings would again be circled back to some investments or the other.
• Healthcare costs have shot up in recent years and continue to rise at a fast pace and continue to grow. The budget should incentivise this by raising the deduction limit for medical insurance premium under Section 80D from Rs 25,000 to at least Rs 50,000 for self and family.

Positive announcements with reference to some of the above points made will definitely help the industry reach its potential, which is poised at USD 280 billion this year. The target can be realised if awareness about the importance of insurance, along with innovative products and their accessibility is effectively made with seamless distribution channels.

(The author is CEO & Co-Founder at Easypolicy)