Finance Minister P Chidambaram today announced a revival package for the life insurance sector. The steps include easing investment norms for insurance companies, faster product clearances and tax incentives to improve insurance penetration in the country.
At present, insurance companies are required to put 75 per cent of their debt market investments in AAA rated instruments. These do not include investments in government securities.
The finance minister said that the Insurance Regulatory Development Authority (Irda) would consider relaxing the stipulation, and provide that the minimum requirement of 75 per cent in AAA instruments would apply to debt investments including government securities and other investments.
| WHAT’S IN THE 12-POINT PLAN |
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“This is expected to release a space of 12.5 per cent for investments in less than AAA rated debt instruments,” Chidambaram told reporters announcing a 12-point action plan for the sector.
Currently there are not too many AAA rated instruments for life insurance companies to invest and relaxing the investment norms would help them park their funds in AA rated bonds. There has been no change in equity investment norms.
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To address the industry’s concerns on regulatory delays in product approval, guidelines will be issued by the end of November for mandating 30-day norm for clearance of products. To speed up clearances, the insurance regulator will also introduce a system of ‘Use & File’, against the current practice of ‘File & Use’. This means it will design some standard products for the industry to use without seeking its approval, provided the product fulfills the stipulated conditions.
Sam Ghosh, CEO of Reliance Capital said, “Product approval, which was the biggest concern of the industry, will now happen quicker since the 'use and file' system is being brought in. It has addressed our concerns on the product side and will lead to growth in life insurance industry."
P Nandagopal, MD & CEO, IndiaFirst Life Insurance said, the reforms, especially introducing a 'use and file', system is a good initiative. This would hopefully help in launching products, he added.
Life insurance penetration in the country is just about five per cent. In the last two years, the industry saw a severe slowdown, with policy issuances falling eight per cent in 2011-12. First-year premium collections fell nine per cent to Rs 1,14,233 crore. In the April-July period this year, the sector recorded 16 per cent jump in new business collection at Rs 31,180 crore but the growth was driven by 23 per cent rise in sale of new policies by state-run LIC, while private insurers grew at 0.1 per cent.
The insurance regulator will also ease conditions regarding investment in infrastructure projects. At present, investments are permitted in an infrastructure SPV (special purpose vehicle) floated by a public sector enterprise (PSE) subject to the condition that the parent company meets the rating criteria.
“In order to encourage investments in infrastructure, Irda will allow investments in an infrastructure SPV floated by any company where the SPV is a wholly-owned subsidiary of the parent company and the debt instrument issued by the SPV is guaranteed by the parent company, having due regard to rating criteria,” Chidambaram said.
Today life insurance sector is second only to banks for mobilised savings. It has an investment corpus of roughly Rs 13 lakh crore, but less than one-sixth of it goes to the infrastructure sector.
The finance minister said tax incentives were also being considered for promoting the life sector. Reduction in service tax on first year regular premium as well as single premium polices and exempting social security insurance schemes and micro insurance policies from service tax is under consideration.
Tax treatment of annuity products on par with the New Pension Scheme, TDS on commission payments made to agents comprise some other tax related issues, assessing service tax on premium on realization basis instead of accrual basis, and tax relief to more products under Section 80C of the I-T Act are some of the other tax issues being considered by the finance ministry.
The revenue department is likely to examine the proposals by October 10, following which an announcement will be made. The finance minister will also meet general insurance companies soon to address their concerns.