By Shashwat Sharma, Director, Financial Services, KPMG
The Indian insurance industry has witnessed several changes in the
last eight years post liberalization than it had in the previous one
hundred years. Changes in the industry have been so drastic that all
the companies, the incumbent LIC included, had to review their
strategic plans several times in the last eight years!
De-tariffication in the Non-life segment and high capital requirements
in the Life insurance segment posed new set of challenges to the
players.
These challenges however, have not reined in growth and the growth
rate continues to remain one of the highest in the world. But to be
able to sustain these growth rates and overcome the current economic
downturn, the industry needs a fillip from the Government and the
Regulator. While the last year's budget witnessed some initiatives
like increase in deduction for individuals for payment towards medical
insurance premium for parents, some of the key issues like Foreign
Direct Investment (FDI), carrying forward of losses, tax exemption for
long term investments remain unresolved. We hope that this year's
budget would address these issues.
Expectations and Wish list:
* Foreign Direct investment to go up to 49%: This has been
discussed for long time now and had also been included in the
insurance reform bill, introduced in December 2008. It is expected
that FDI would be increased to 49% in this budget session
* Permission to the foreign re-insurance companies to open
offices: As presented in the insurance reform bill, it is expected
that the foreign reinsurance companies would be allowed to open
offices and conduct business in India to provide a fillip to
reinsurance business in India
* Losses to be allowed to be carried forward for 10 years: Life
Insurance business has a long gestation period with average break-even
period of around 10 and 12 years. The current global economic crisis
has only helped in elongating this period. In view of the current
global economic scenario and nature of the industry, we hope that the
life insurance companies would be allowed to carry forward their
losses for 10 years as compared to the existing prescribed limit of 8
years
* Increased tax exemptions for life insurance and pension plans:
Life insurance and pension plans are the key financial instruments
which can meet the long term investment needs of the individuals and
provide social security to them. To promote the long term savings
amongst the Indian consumers, we feel the need for providing a
separate limit of deductions (apart from Rs 1 lac) under Section 80C
for life insurance and pension plans
* Encourage public private partnership: Public Private Partnership
(PPP) can play a key role in promoting insurance specially health
insurance in India. While Government has encouraged PPP in past by
implementing schemes like RSBY, it is expected that the Government
would launch more schemes like RSBY to provide social security
coverage to poor households
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