BS Insurance Round Table: 18% GST on premium is brutal, says Irdai member

The government must also allow separate tax breaks for pension products of insurance companies, said IRDA member Nilesh Sathe

The levying of an 18 per cent tax on insurance premiums is detrimental to improving the penetration of insurance in the country and should be rolled back, said Nilesh Sathe, a member of the Insurance Regulatory and Development Authority of India (Irdai) and chief guest at the annual insurance round table of Business Standard.

“With low social security provisions happening or possible in India, charging premiums at 18 per cent GST (goods and services tax) is brutal,” Sathe said in his keynote address on Wednesday. “Do you think increasing penetration in India is the responsibility of Irdai or insurance companies only? It is the responsibility of every stakeholder, including the government,” he said, adding that Irdai had informed the government that most other countries, including developed markets, “do not charge any tax on insurance premiums”.

The government must also allow separate tax breaks for pension products of insurance companies, in line with Rs 50,000 separate head made for the new pension scheme, he said.  Sathe encouraged e-commerce firms to enter the insurance sector, saying it would improve the awareness and penetration of insurance products.  
 

“Let the Amazons and the Flipkarts come into insurance. I am sure there will be more and more people who will appreciate and buy insurance as its penetration and density is low... There is a lot of market,” he said.

Irdai is not just a regulator, it also has a development role to play, considering the huge business opportunity the country offers, he said.

“Compared to the world’s total insurance premium, India accounts for just 1.5 per cent. However, there is a great opportunity because when the penetration is low, obviously there is a greater scope.” 

He said that with rising awareness, some products were witnessing good traction. “Pension, health, motor and property have potential to be growth engines of the Indian insurance industry in near future,” he noted.

Increased life expectancy means that awareness is rising about high out-of-pocket expenses in health care, and this is increasing the need for health insurance, premium collection in which has been growing at 25 per cent year on year in the past five years. Besides, insurance companies are also managing gratuity of companies and therefore there is a huge amount of inflow in the insurance sector.

This money, in turn, finds its way into the infrastructure space in India.  

“The insurance sector plays an important role in driving the economic development of the country with its long-term provisions for funds for infrastructure development, which concurrently strengthens the risk-taking ability of the nation,” Sathe said.

The insurance sector needs to further focus on making their products simple, adopt low-cost distribution through digitisation, and manage fraud better, he said.
 

Demonetisation, unified payments interface (UPI), IndiaStack, and new schemes by the government have come as a great tailwind for the insurance sector. However, new generation of customers, especially millennials, are buying insurance products and are conversant about technology, which should be harnessed, he said. 

Unlike mutual funds, which gets about 40 per cent of its business from just one city – Mumbai, insurance is accepted widely in the rural markets. “We have got 330 million policies sold to 250 million people, and many of them are in rural areas. In Mumbai, the penetration of life insurance is only to the extent of 11 per cent, as against 39 per cent in mutual funds. Having said that, any kind of financilisation is a good habit,” he said.

He said, “Let us not get carried away by whether insurance is good or mutual fund is good. Everything is good. Non-financial savings is not good. Anything which is bringing a customer into a financial savings is good. That is something we all should promote,” said Sathe.