Ever made a health insurance claim only to be shocked that that plush hospital suite you opted for is only partially covered, but find the insurance company ready to cover other out-of-pocket expenses as a goodwill gesture? That is exactly how the insurance industry would be feeling right now after the Budget for this year came out with its measures for the insurance sector. The year 2014 was good for the Indian insurance sector, with plans of FDI and several progressive IRDA Guidelines. While the Union Budget of 2014-15 had brought in a fresh lease of life to the sector, this year’s Annual Budget lacked any big incentives or growth plans. As a result, insurance players will now have to innovate and enhance customer experience in order to retain customer interest.
Uncertainty over Insurance Bill:
Insurance service providers and sector analysts were hoping that the Finance Minister would make some announcements on the long pending Insurance Bill. The Bill had some contentious issues that insurance companies had raised over certain sections. The Government had managed to get the insurance laws (amendment) bill passed in the Lok Sabha, but was gridlocked in the Rajya Sabha due to the ruling party’s lack of numbers. The growing uncertainty over the passing of the Bill and enactment had made all stakeholders, including insurance companies and potential investors in the sector float, jittery. However, as notified by the DIPP, the Lok Sabha has passed the proposal for raising the foreign investment cap from 26 per cent to 49 per cent post the Budget announcement. Though the limit is composite in nature and includes foreign portfolio investment, foreign institutional investment, foreign venture capital and non-resident investment, it is prone to be seen as a step in the right direction by players in the insurance sector.
Impact of Health Insurance Deduction Hike:
With no increase in Section 80C limits in this year’s Budget, corresponding increases in insurance spends were pre-empted. For the insurance industry, this nominal loss was partly offset by another measure in health insurance. The Budget has increased the tax benefits for health insurance premiums under Section 80D, benefiting both insurance companies and consumers. Higher tax deductions (from the existing limit of Rs. 15,000 to Rs. 25,000, and to Rs. 30,000 for seniors) are likely to usher more taxpayers into the health insurance fold. Armed with higher health insurance cover, many more would be able to avail quality healthcare than ever before, which could change the social demographics of the country by lengthening life spans and raising the quality of life.
Increase in Service Tax:
The increase of service tax from 12.36% to 14% would increase the cost of input services for insurance companies. Even the cost for bundled insurance would shoot northwards, which would make it difficult for people in lower income groups to consider insurance as an essential spend. Insurance companies will likely have their hands full battling this potential dip in consumer interest.
Lack of Clarity on Swachh Bharat Cess and Its Impact:
In his Budget speech, the FM introduced a Swachh Bharat Cess of 2 percent on the value applicable on any taxable service. While it is unclear whether the Cess would be applicable on insurance products or not, insurance analysts and experts suspect it can be a dampener for their growth. With elevated service tax levels already making insurance costlier, any extra cess would only serve to alienate prospective insurance buyers even further. With no big-ticket announcements in the recent Annual Budget for the insurance sector, it has been a mixed bag for the sector’s stakeholders. India being a country with relatively low insurance penetration, industry players were likely expecting more definitive reforms that could have helped them grow as well as benefited the insured. However, if there is a redeeming feature, it is that the first positive steps by the new regime have been taken.