Chennai: This year's budget proposals - tax exemptions to investments made in specified avenues subject to an overall ceiling of Rs1 lakh; the increase in the threshold limit of taxing salaries, is all set to turn the life insurers aggressive.
As per the new proposal, some of the investment avenues that would qualify for 80C exemptions are:
(a) life insurance premium
(b) deferred annuity plan
(c) contribution to public provident fund
(d) provident fund contributions
(e) approved superannuation fund
(f) subscription to securities approved by the central government
(g) subscription to savings schemes notified by the central government
(h) mutual fund units and,
(i) contributions to pension fund.
Now the fight for the entire taxable surplus is going to be fierce. Downplaying the impact, Venkatesh Mysore, managing director, MetLife India Life Insurance Company P Ltd says, "The budget proposal widens the base and enables people to do significantly more elaborate life insurance and pension planning."
Adds Gaurang Shah, managing director, Kotak Mahindra Old Mutual Life Insurance Company Limited, "The artificially administered interest rates on certain government instruments, as well as maturity and tenure mismatches may lead to disadvantaging life insurance premiums as long-term savings instruments."
The proposed tax provision has put the life insurance companies on a different plane now. Says an official of AMP Sanmar Life Insurance Company Limited offers an interesting scenario, "The budget proposal has taken away the tax benefit element for life insurance and brings in the risk cover element into sharp focus."
Agreeing with him is Sam Ghosh, CEO, Bajaj Allianz Life Insurance Company Limited and country manager Allianz, who says that life insurers will have to redraw their marketing strategies after April 1, 2005.
Speaking about the impact on sales of different schemes Ghosh says that sales of traditional policies may go up. It should be noted that the investment risk is borne by the policyholder in the case of unit-linked policies whereas the insurer bears the risk in policies like endowment.
With all investments put on par for taxexemptions, the fight between the mutual fund industry and the life insurers selling unit-linked policies is expected to become more severe.
Already the mutual fund players have expressed reservations about life insurers getting into their territory without the restrictions they face.
However, life insurers state that theirs is a more retail oriented strategy unlike the mutual funds, which are partronised mainly by the corporate sector. "I don't expect unit-linked policies going down," Ghosh remarks.
With the government allowing trading in gold units, the Insurance Regulatory and Development Authority (IRDA) is expected to permit life insurers to launch gold backed unit-linked policies, competing with gilt funds.
Insurers fell that there isn't much in the budget for them. While the finance minister had announced coverage of weavers under life and health insurance policies at an outlay of Rs30 crore each, the entire amount is expected to go to the government-owned life and general insurers.
"Covering weavers and providing after sales service requires a nation-wide distribution network which private insurers lack. Perhaps we may pitch for a share in this business next year," says Ghosh.
On the whole the life insurers are not greatly enthused with the new 'dream' budget.
This is because of the private insurers' disappointment over the silence in hiking the FDI limit for the sector. Remarks Frank Koster, managing director and CEO, ING Vysya Life Insurance Company P Ltd, "The fledgling life insurance industry in India requires capital to grow rapidly and become a strong pillar of the economy. We are disappointed that while other services sectors like banking, mutual funds, airlines and retail have higher FDI allowances, insurance does not go to 49 per cent."
For the general insurance sector, the budget contained no changes. The finance minister didn't tinker with the tax exemption for mediclaim insurance premium. He mentioned that the Insurance Regulatory and Development Authority (IRDA) should bring non governmental organisations (NGO), self help groups (SHG) to sell insurance policies in the rural areas under micro insurance.
As a result not many general insurance companies issued their reactions to the budget.