Budget 2018: Arun Jaitley's bold policy steps to expand insurance market

FM said the govt would launch a flagship called the National Health Protection Scheme to cover over 100 million poor and vulnerable families

By announcing the merger of three state-owned non-life insurance companies, the government has taken a bold step that will curb unhealthy competition, improve governance, and bring discipline.

Union Finance Minister Arun Jaitley, while presenting the Budget for 2018-19, said National Insurance Company Ltd, United India Assurance Company Ltd, and Oriental India Insurance Company Ltd would be merged into a single entity and then listed.

Economic Affairs Secretary S Garg said the process of consolidation and listing would be completed in 2018-19.

Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services LLP, said none of the three companies had a good financial profile. The merger and eventual listing on the stock exchange should help to improve governance. There is a need to enhance efficiency in claims management and underwriting.

Insurance sector analysts said such consolidation, when it fructifies, increased market discipline. While the market potential for non-life insurance is huge, many players often indulged in practices that vitiated competition. 

Niraj Jain, chief executive and principal officer of Lambach Insurance Brokers, said the merger was another good move that would not only stabilise the three public sector units but also the insurance sector as a whole. This initiative would increase the risk-taking appetite of the merged entity, Jain said.

Health protection to boost insurance market 

Jaitley said the government would launch a flagship called the National Health Protection Scheme to cover over 100 million poor and vulnerable families (approximately 500 million beneficiaries) providing coverage up to Rs 500,000 per family per year for secondary and tertiary care hospitalisation. 

This will be the world’s largest government-funded health care programme. 

Bhargav Dasgupta, managing director and chief executive, ICICI Lombard, said the Rs 500,000 cover and increase in medical insurance tax exemption for senior citizens indicated the focus of policymakers on ensuring protection against health hazards for India’s populace. Joydeep K Roy, partner and leader - Insurance, PwC India, said India was moving towards a framework of a National Universal Health Insurance scheme. 

This would be a precursor and an experiment, and therefore it looked like this would need to be a public-private partnership between the government and the insurance companies. 

The most appropriate thing to do for the government would be to partly subsidise premium payment and leave the operationalisation and risk-carrying to insurance companies, he said, adding the only weak link here would be the health provider network (hospitals and clinics), which need to fall in line to offer suitable services on a single protocol and IT system network. 

Higher exemption to aid healthcare insurance

The government raised the limit of deducting health insurance premium and/or medical expenditure from Rs 30,000 to Rs 50,000 under Section 80D of Income Tax Act.

All senior citizens will now be able to claim benefits of deduction up to Rs 50,000 per annum for any health insurance premium and/or any general medical expenditure incurred. People in India still look at tax benefits for insurance premium payments and this will be an effective stimulus towards increasing the penetration of health insurance. 

However, health and general insurance companies would need to look at offering attractive features for people, Roy said."We have been demanding the merger of all the four public sector insurance companies to form a larger organisation similar to LIC. With New India Assurance going for an IPO, merging the three is a positive move. The merger will bring in synergy and increase the strength of the employees,” said S Vasudeva Iyengar, president, United India Insurance Officers’ Association. He said United India Insurance had around 17,000 employees and together the three firms would have around 50,000 employees.

K Govindan, general secretary, General Insurance Employees’ All India Association (GIEAIA), asked the government to merge all the four PSUs, including the listed New India Assurance. Besides, the current plan for merger is towards disinvestment and the union is against disinvestment.