One of the key factors driving macro growth in any country is the generation of employment opportunities. In India, where around 60% of the population is below 30 years of age, it will be important for the finance ministry to look at initiatives that leverage this demographic dividend through employment generation measures by focusing on education, infrastructure, training.
Much of these employment opportunities will come from the service sector and hence this will need to be an area that the FM should focus on. Increased employment being created right now at tier 1 and 2 city levels are translating into the burgeoning nuclear families concept.
The concept of nuclear family in-turn leads to a predisposition of the chief wage earner towards Life Insurance as a category- given a total dependence of the family on only his earning. We feel creating employment in small cities and towns will also add to increase in the nuclear family set and create an increased pull from the customers towards insurance.
Micro insurance and financial inclusion
Nearly 60% of our population does not have bank accounts, 90% do not get loans and almost 96% have no insurance. Under these circumstances, it is important to increase financial inclusion through initiatives that foster greater access to the larger majority.
A critical step in this direction would be the abolishment of service tax on micro-insurance in order to encourage and increase penetration of insurance service taxes further burden the rural customer with additional charges. Furthermore, the current model of distribution of insurance through the one bank one insurance company model, discourages competition and limits insurance penetration.
In the case of micro-insurance, access plays a very important role and if the 'exclusivity' model is done away with only for micro-insurance, financial inclusion in insurance will become a reality.
Health insurance
Availability of mortality data has been of great assistance to the life insurance sector. In order to see similar growth in health care and health insurance sector, we need a budget sponsored initiative to make available morbidity data - explaining illnesses and extent of illnesses prevalent in India.
Currently, health insurance pricing is based on data available from overseas and the market penetration is as low as 5%. The morbidity data would help in streamlining the industry by making pricing more scientific and, thereby facilitating growth. It will furthermore aid in building a robust policy management framework.
On direct and indirect tax
The September IRDA regulations in the right spirit, brought down agency commission levels, which to some measure subdued the "push" factor that operated on the distributor side.
We hope that the 2011 finance bill will increase the deductions available to individuals for life insurance products thus getting an increased traction on the customer and in turn strengthening the" pull" factor in the sales process.
Life insurance companies pay service tax from the first rupee earned by agents via commission and do not enjoy the threshold exemption of Rs. 10 lac on payment of these taxes. As a result, the overall tax liability for the company increases making it an additional cost burden ultimately borne by customers. We suggest that agents are directly made liable for the service tax on their commissions.
The agent would then be able avail of the benefit of exemption in service tax whereas the Life Insurance Company and the consumer will not be subjected to a percolated tax hit. Overall, it's a win-win for both the industry and the consumer and, we strongly urge the finance ministry to take this into account."
