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With positives like growing digitisation, progressive regulatory policies, and a gradual rise in awareness, this is the opportunity to reimagine the insurance landscape
Insurance Sector Expectation For Budget 2025
The Indian insurance industry is poised for transformative growth, driven by rising awareness of financial security and the growing demand for effective risk management. As the government prepares for the Budget 2025, the industry is optimistic about key reforms that could enhance financial inclusion, address affordability concerns, and align India’s insurance practices with global standards.
Separate Tax Exemption for Term Insurance
Term insurance is a vital part of financial planning, providing essential life coverage at an affordable cost. However, the absence of a dedicated tax exemption for term insurance premiums often discourages individuals from securing adequate coverage.
Reducing GST on Insurance Products
The current Goods and Services Tax (GST) rate of 18% on insurance premiums remains a significant barrier, particularly for lower-income groups. High premiums, compounded by GST, make insurance unaffordable for many. Lowering the GST rate would make insurance more accessible, benefiting policyholders and driving greater financial inclusion, particularly in underinsured segments.
Enhancing Tax Deductions for Health Insurance
Given the rising cost of healthcare, health insurance has become essential. “Increasing the deduction limit under Section 80D to Rs 50,000 for individuals and Rs 1,00,000 for senior citizens would provide much-needed relief. Additionally, introducing tax exemptions for contributions to Health Savings Accounts (HSAs) would further ease the financial burden of medical expenses, ensuring individuals can access quality healthcare without financial strain,” said Bajaj.
Updating Rule 6E for Unexpired Premium Reserves
Rule 6E of the Income Tax Act, which currently allows only 50% of unexpired premium reserves for calculation, is outdated and misaligned with modern financial practices. Adopting the 1/365 method, already approved by the Insurance Regulatory and Development Authority of India (IRDAI), would ensure fairer risk management and align India’s insurance sector with global standards.
Exempting Annuity Income from Taxation
Annuity products are key to retirement planning, but the current tax treatment of both annuity income and the principal discourages their use. Exempting annuity income from taxation would encourage more individuals to invest in retirement products, ensuring greater financial security in their post-retirement years and easing the burden on social welfare systems.
Addressing Medical Inflation with Pricing Consistency
Medical inflation, with hospitalization costs rising by up to 15% over three years, presents a challenge for both insurers and policyholders. The existing rule, which allows insurers to adjust product prices only once every three years, is inadequate in addressing rising costs. Establishing pricing consistency at the hospital level, through government intervention or a dedicated health regulator, is essential to mitigate the impact of medical inflation and ensure the sustainability of health insurance products.
Boosting Growth Through Investments and Innovation
India’s insurance sector has attracted $6.5 billion in investments over the past nine years, showcasing its growth potential. With 57 insurers in the country and a 100% Foreign Direct Investment (FDI) cap, the sector is becoming increasingly competitive. To sustain this growth, rationalizing GST rates and introducing tax incentives for innovation are key. These measures would attract further investments and promote the development of products tailored to the needs of diverse customer segments.
Creating a Health Regulator
The creation of a dedicated health regulator has long been a demand of the insurance industry. Such a regulator would oversee pricing mechanisms, standardize hospital costs, and ensure fair pricing, thereby improving the affordability of health insurance products. This initiative would also enhance the sustainability of health insurance offerings, making them more accessible to a larger population.
Promoting Insurance Awareness and Adoption
Policybazaar’s 2023 study titled How India Buys Insurance revealed that owing to insufficient funds to pay the premiums, a majority of the population held off purchasing or renewing their health and life insurance policy. The study also pointed towards the need to create simpler products that offer key benefits minus the frills to ensure that affordability doesn’t come in the way of financial protection.
Affordability is not just about premiums, it’s about getting value for money. Data-driven underwriting models are allowing insurers to design products that match individual risk profiles more precisely. Personalised pricing, flexible payment options, and modular products are aiding this approach. Moreover, seamless claims processes, in line with regulatory reinforcement, are helping alleviate long-standing concerns about transparency and reliability. Also, insurers are leveraging AI and advanced analytics for underwriting and claims to address the rampant trust deficit as well as affordability. The asymmetry of information, once a roadblock for both consumers and insurers, is now being replaced by data-backed transparency.
Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
