Even as Finance Minister Nirmala Sitharaman did away with most income-tax deductions in the new tax regime announced in her Budget for 2020-21, the insurance industry remains unfazed and confident of retaining customers. They, however, maintain that removing tax incentives given for putting money in insurance is disservice to customers.
"If tax-saving was a sweetener, we will figure out a way to work without the sweetener. Indian consumers buy insurance for a variety of reasons, and tax incentives stand much lower on the list. But the move will surely make some impact, as it directly affects customers," said RM Vishakha, MD & CEO, IndiaFirst Life Insurance.
Raj Kumar, MD & CEO, LIC, said that the high-networth individual (HNI) segment never bothered about tax exemptions. "Rural customers are not supposed to file. The HNI segment is not bothered, either. In the long term, we have to educate customers that tax saving is only a bonus. Twenty years ago, LIC was getting 50 per cent of its business in the last quarter. Now it has reduced to 30 per cent," he said.
N S Kannan, MD of ICICI Prudential Life, said that the finance minister's decision would not impact the industry in the short term. "It makes sense for the bulk of customers to continue with the exemption regime rather than shifting to the new regime. The new regime is a 'non-event' for the industry. It's not a 'here and now' problem, it's a 'there and then' problem," he said.
On the proposed LIC listing, Raj Kumar said: "LIC investments are not determined by the government, but the LIC Act. Whatever disclosures LIC has to make as part of Irdai (Insurance Regulatory and Development Authority of India) regulations, it has been making. We don't have expertise or experience on how IPOs happen. We are currently working on internal perception, we are speaking to our agents and employees and clarifying their doubts."
Asked for comment on the LIC IPO, SBI Life Insurance President Abhijit Gulanikar said LIC had been 'fairly transparent' as far as finances were concerned and that it would get more transparent after listing. "When somebody like LIC lists, it brings in a lot of innovation into the market. There will be a lot of push and pull. So, we welcome the listing," said Suresh Badami of HDFC Life.
Kannan had perhaps the best line on the development. "IPO or no IPO, LIC is one of the toughest players on the market. It is a behemoth. It will open up the sector more for investors," he said.
On the issue of opening of the economy through raising of the foreign direct investment (FDI) limit, the insurance industry agreed that it needed more capital.
"China has advanced its opening up of the insurance sector to foreign capital faster than expected. Industry requires capital. Raising FDI is important as solvency ratio has been increased by the regulator. Market capitalisation of life insurance stocks has increased over 40 per cent in the past years indicating the interest that the industry has generated. For smaller companies, it will be interesting to attract foreign capital through joint ventures. There is no logic for not having 100 per cent foreign capital for the industry," Kannan said.
"It's better to have an open economy; it will benefit customers. An Indian promoter may not have the wherewithal to run this industry, given its technical nature, so why not have foreign capital coming in," asked Abhijit Gulanikar.
R M Vishakha of IndiaFirst Life said foreign capital was critical when a company went for listing. Badami said foreign capital would be important for small players. "There will be more innovation from smaller players when foreign players come in. Foreign players will bring in their strengths," he said.