Given that individual taxpayers have been given the option to do away with tax incentives and pay a lower flat rate, what will be the impact for the life insurance industry?
Yashish Dahiya: I don't think the protection segment will be that impacted. But one of the reasons for buying an investment product was tax incentive. From the consumer perspective, some attractiveness will go away in the future years, not this year, and there'll be some continuity for a few years. It is both an opportunity for the industry to look more at innovation, look more at protection, but it's a challenge from a lot of investment points.
RM Vishakha: Tax incentive was actually some kind of a motivation to individuals to be more careful and to be more risk aware and to protect their families. I think this is a disservice to customers at large. As a country, we're not very risk aware, and if we take away even the incentives, I am worried about how are we going to be creating that entire risk management awareness to a customer. From an insurance company’s point of view, we will find another way obviously, we will find different ways. We will figure out how to sell better.
Suresh Badami: The reason for which the Indian customer is buying life insurance is not tax saving. It could be in terms of planning for exigencies, improving quality of lifestyle, or for child education. There's been a lot of innovation which has happened in terms of savings. Clearly on the annuity and the protection side there are a lot of products which people do go back and buy.
Abhijit Gulanikar: We have not received any pushback from our sales team or heard that tax is the first thing that gets pitched now, when insurance is getting sold.
NS Kannan: I actually don't see any impact whatsoever because of this change. In the short term, I think it makes sense for the bulk of the customers to continue with the exemption regime. The issue will only arise when we are forced to shift to a new regime of no exemptions at all. The protection product will absolutely have no impact, because it is always sold on a need basis and not on a tax platform.
Raj Kumar: With 55 million income tax payers and every year 30 million policies being sold; tax becomes irrelevant. The high net worth individuals (HNIs) are not bothered about this. Then there are rural customers who are not supposed to file an income tax return. Then there is the middle segment, which I believe has already been tapped and only the newcomers’ may be interested in these exemptions. In the long term, we have to educate the customers that life insurance is for protection, not for the tax savings and the saving part was an added benefit.
Only in the insurance industry, the FDI limit has been capped at 49%. Do you think it should be relaxed?
Kannan: Increasing 49 per cent to a higher percentage is a reform that has happened in other sectors. Insurance industry will continue to consume capital. So if you can attract large pools of capital from abroad, it's a good thing for the industry as a whole. If you look at the three four listed players here in life insurance industry, we have all grown anything between 40 to 60 per cent. It is good for us as a country to take advantage of this situation and attract foreign capital.
Gulanikar: It is better to have an open economy with more competition coming. We need to cross the bridge when it comes. But if 20 per cent plus needs to be divested, and not enough time is given, I don't know who has that much money to invest in.
Vishakha: It is very important, especially for companies which are not yet listed. When they go for listing, and if the FDI limit is capped at 49 per cent, they may not attract any FIIs.
Badami: Life insurance as a long term saving product leads to a huge corpus which the government can tap for infrastructure and many other such areas. I would think that yes, if you are able to open the sector to a 74%, like maybe some of the other sectors, it will add a lot of value. And maybe the foreign players who come in will bring with them their core strengths, and it will add a lot more value in terms of what we can do in the industry.
Dahiya: If you don't run a business well, and you lose out because of that, that's one issue. But if it's because of just access to capital, I think that's a pretty sad situation. FDI has only benefited every sector. So what's the big issue?
How will LIC IPO impact the industry?
Kumar: The discussions were on for the last four-five years. But it was not known when the announcement will come. So, it was a bit of surprise because now government has announced that they are going to diverse between 5 to 10 per cent.
Is it easy for you to go for an initial public offer (IPO)?
Kumar: There is a perception that our investments are determined by the Government of India. No, it's not like that. Investments are determined by LIC Act and Insurance Regulatory and Development Authority of India (Irdai) regulations.
Till now we have not received any formal kind of communication from the government, but I believe that they have started some exercise at the ministerial level. The government has a very clearly said that we would like to have happened in the second half of the next financial year.
For the first time LIC is doing an IPO and we don't have any expertise and experience how the IPO works probably so we have to get some information from the industry or the other segments of the market from where IPOs have happened. We have never calculated embedded value because we were not required to. It came on February 1 and presently we are on the job of managing internal perception. We have to talk to 1.2 million agents, and we have to talk to 110,000 employees. On February 2 itself, the finance minister has gone on record saying that sovereign guarantee will not be affected.
How does the LIC IPO change the rules of the game?
Dahiya: LIC is a fairly competitive, very competent, very high technology investment organisation. Usually, an IPO makes entities more competent.
Badami: Frankly, any listing will bring forward more disclosure and bigger transparency. Whenever somebody like an LIC lists it will bring is a lot of innovation and dynamism in the market, because there will be a lot of push and pull.
Kannan: I feel that IPO or no IPO and LIC is one of the toughest competitors in the industry. About 20 years of liberalisation even now, if you look at the total receipt premium on the first year basis, they have a 70 per cent market share. It is a behemoth and it's probably the best known retail financial services brand in the country. We are very minnows and they have done a fantastic job. So, I think the industry will be competitive and LIC will be a very, very significant player IPO or not.