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Insurance sector: Increase FDI ceiling to 49 per cent

March 07, 2012 14:17 IST
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The number of insurance companies stood at 48 at the end of 2010-11, consisting of 23 life insurers, 24 non-life insurers and a reinsurer. Edelweiss Tokio Life Insurance was granted registration in the year 2011-12, leading to total number of insurance companies increasing to 49 as at end-September 2011.

The total premium underwritten by the life insurance sector in 2010-11 was Rs 2,91,605 crore (Rs 2,916.05 billion) as against Rs 2,65,447 crore (Rs 2,654.47 billion) in 2009-10 exhibiting a growth of 10 per cent.

On the basis of the total premium income, the market share of private life insurers stood at 30 per cent in 2010-11, while the of Life Insurance Corporation of India, the country's sole public life insurer was at 70 per cent in 2010-11.

The nonlife insurance industry underwrote total premium of Rs 42,576 crore (Rs 425.76 billion) in 2010-11 as against Rs 34,620 crore (Rs 346.2 billion) in 2009-10, registering a impressive growth of 23 per cent.

The four public non-life insurers reported a market share of 59 per cent, while the 15 private players recorded a market share of 41 per cent in terms of the total underwritten by the industry in 2010-11. The motor business continued to be the largest nonlife segment with a share of 43 per cent.

The insurance penetration was 2.32 per cent (Life: 1.77 per cent and Non-life: 0.55  per cent) in the year 2000 when the sector was opened up for private sector. It increased to 5.10 per cent in 2010 (Life: 4.40 per cent and Non-life: 0.70 per cent). The insurance density stood at USD 64.4 in 2010 (Life: USD 55.7 and Non-life: USD 8.7) from USD 9.9 in 2000 (Life: USD 7.6 and Non-life: USD 2.3).

After falling continuously for the last ten months, the first year premium collection of life insurers increased 15 per cent to Rs 9,543.15 crore (Rs 95.43 billion) in January 2012. LIC, the sole public life insurer witnessed 31 per cent surge in the first year premium income to Rs 7,091.93 crore (Rs 70.91 billion), but the first year premium income of the 23 private life insurance players dipped 15 per cent to Rs 2,451.22 crore (Rs 24.51 billion) in January 2012. During April-January FY2012, the fresh premium income of the life insurers has declined 14 per cent to Rs 81,496.69 crore (Rs 814.96 billion).

Gross premium underwritten by non-life insurers including the specialised institutions grew by 25 per cent to Rs 5,191.48 crore (Rs 51.91 billion) in January 2012.

The public sector players witnessed 31 per cent growth in premium income to Rs 2,877.85 crore (Rs 28.77 billion), while the private non-life insurers posted 19 per cent growth in premium collection to Rs 2,313.63 crore (Rs 23.13 billion) in January 2012.

The gross premium underwritten by the non-life insurance sector grew 24 per cent to Rs 47,215.32 crore (Rs 472.15 billion) during April-January FY2012.

Industry Expectations:

• Increase of FDI ceiling in Insurance Industry to 49 per cent. Raising the cap will provide enough incentive to foreign companies to invest in Indian insurance sector. This will create required capital in the industry and help the sector expand much faster.

• Service tax may be removed for all insurance policies with premium up to Rs 2,500

• To reduce the 20 times for tax exemption of maturity proceeds to 10 times as it would provide a glide path to the desired objective of emphasizing protection in insurance

• Recommends charging confessional rate of tax on profits @ 12.5 per cent for life insurance companies

• Exemption limit should be increased and should be wholly and exclusively for life insurance products to a minimum of Rs 2 lakh

• Cenvat credit reversal of 20 per cent for the life insurance industry introduced by Budget 2011 should be recalled

• Promote long-term savings habit by providing separate tax exemption limit of Rs. 2 lakhs for long-term saving instruments like Life Insurance

• A separate limit for tax limit for life insurance premium or may increase the limits on life and health insurance premium

• Presently Service Tax on FMC on Management of Investment under ULIP is charged on rates of 1.35 per cent or actual charges whichever is higher. Life insurance companies are charging FMC at rate lower than IRDA prescribed maximum of 135 bps. This is resulting into excess Service Tax. Recommended that ST should be charged on actual FMC amount

• Moneyback products should not be taxable as they are payable on "contingency of life defined and as prescribed under the Insurance Policy" and "the amount is generally linked with sum assured and is certain at the Policy issuance stage"

• Steps like incentives, besides tax savings, for people buying health insurance and allocation of resources for public private partnership to increase health insurance penetration will be a positive move for the sector

• TDS on health insurance claim payments reimbursed to hospitals should be NIL as this will help in controlling the rise of health insurance premium and will help increasing penetration of health insurance

• Raising healthcare expenditure as a sizeable portion of the Gross Domestic Product will further aid development of the sector

• Imposition of service tax on preventive health check-ups can be removed

• Cenvat credit to be allowed on payments made to motor repair garages as part of the motor claim settlement.

• Deduction of tax at source, on Reinsurance premium, paid to foreign reinsures, to be maximum at 2 per cent.

Analyst Expectations

It is expected that the government may expand the scope of its health insurance plan-Rashtriya Swasthya Bima Yojana (RSBY) to all unorganised workers including the non-BPL (Below Poverty Line) workers. RSBY, at present covers only those workers from the unorganised sector and their families who are below the poverty line.


The Indian Insurance industry given its low penetration level is trying hard to cover as much of people as it can and reach the phenomenal growth that is expected from it. But the industry bounded by various guidelines from its regulator and from the government is unable to thrive even after ten years of its privatisation.

The upcoming budget is expected to address the issues that will help to make the industry more attractive to both the policyholders and the shareholders.

If as expected by many players, the FDI cap is raised to 49 per cent in the upcoming budget might pay way for more foreign companies to invest in India but it is unsure whether the government will take its stand on the bill as it was already rejected by the standing panel on the grounds that this desired effect could expose the Indian economy to global vulnerability.

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