Union Budget 2023-24 Expectation: Why FM should cut GST on insurance to zero

The IRDAI Annual Report 2020-21 has estimated that, by 2026, life insurance in India would grow to $150.6 billion and non-life insurance to $41.8 billion in terms of gross written premium. This represents a double-digit growth in the insurance sector, which can be attributed to several factors including increased penetration, positive regulatory developments, and a growing awareness of insurance and its many benefits.

Other significant growth drivers include favourable demographics with a large young and insurable population, wide expansion of the middle-class with an estimated addition of 140 million by 2030, massive digital adoption, and a pandemic-related shift in demand patterns.

India’s digital revolution

India is currently undergoing a digital revolution, boosted in part by the COVID-19 pandemic. The country has more than 600 million active internet users, and businesses across sectors are reinventing themselves to leverage this growing consumer pie. The insurance sector, too, has embraced digitisation and technology as evident from the rise of Insurtechs.

Indeed, this is a golden decade for Insurtechs in India. Just as fintech has transformed digital payments and the availability of credit to the masses, Insurtech is set to democratise access to both life and non-life insurance. Technology-driven insurance intermediaries will make insurance products more accessible and affordable to customers. They are using Big data to bring product innovation and embedded technologies aided by APIs to offer fast and seamless insurance coverage to many people. Insurtech will also make business with low-income customers more profitable for insurance companies by reducing the cost-to-sell and cost-to-serve policies.

Therefore, Insurtechs will play a crucial role in the development of the insurance industry, which is expected to reach $200 billion by 2026.

Emerging opportunity and bottom line

New pockets of opportunities are emerging, led by small businesses, and people living in Tier-II and Tier-III cities. A bulk of the growth in consumption is projected to come from this segment in the next decade. However, insurance adoption remains abysmally low due to poor affordability, accessibility, and awareness. Nearly 40 crore people in India, or roughly 30 per cent of the population, are currently without insurance – this represents an enormous opportunity waiting to be tapped.

One of the fastest ways to achieve this – particularly life and health – is to encourage MSMEs and corporates to provide the benefits of insurance to their employees and thus bring them under the insurance net. Insurtechs can accelerate this by offering a range of services to medium and small businesses through their tech platforms.

In recent years, and especially since COVID-19, Insurtechs have developed end-to-end digital processes that have simplified distribution of insurance products, streamlined onboarding and provide better customer service. Plug-and-Play architecture has lowered the operational costs by up to 25 percent, and this benefit is being transferred to consumers in the form of affordable premiums, thereby enabling them to opt for a higher and comprehensive cover.

Expectations from Budget 2023

I am hopeful that the government will come out with significant measures for the insurance sector, benefiting both insurers and policyholders.

One of the long-standing demands of the insurance industry has been to reduce the 18 perent GST rate for health and life insurance products. We expect this rate applicable on insurance premiums to be reduced to 12 percent or even lower to 5 percent. A really bold move would be zero GST, which would drastically minimise the cost burden on the customer. This will boost penetration by enhancing interest in insurance plans and making them even more affordable and widely accessible.

Second, increasing the limit for tax deductions under sections 80C and 80D of the IT Act will enhance affordability of life and health insurance products. The deduction limit under section 80C must be increased from Rs 1.5 lakh to at least Rs 2.5 lakh. Similarly, the health insurance deduction limit under section 80D should be raised to Rs 50,000 to 1 lakh, from the current provision of Rs 25,000 for working individuals. These and other incentives will go a long way in meeting the ever-rising cost of medical and hospitalisation expenses, and keeping health insurance products at affordable levels.

Third, I hope the Budget provides incentives for MSMEs and small businesses that will allow them to provide group health insurance and other services such as telehealth or telemedicine to their employees and immediate family members. This will not only expand health insurance coverage, but also bring India’s ‘missing middle’ under the insurance umbrella.

The insurance sector in India is expected to become the sixth largest in the world over the next decade. One of the surest ways of achieving the milestone is to incentivise Insurtech and accelerate growth, and make insurance tax-free so as to make it cost-effective for all citizens. From that perspective, I look forward to Budget 2023 being favourable to both insurers and customers alike.

The author is Vice President and Head of Finance, Plum-an employee health insurance platform. He tweets @mukulkanchan @getplumhq. Views expressed are personal.

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