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High-value insurance policies in the slow lane after tax overhaul

By Aathira Varier
November 28, 2023 13:44 IST
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High-value insurance policies experienced muted growth in the first six months of the current financial year after the Centre decided to tax such products in this year’s Budget.


Illustration: Dominic Xavier/

Simultaneously, there has been a marked improvement in the growth of policies with premiums of ‘less than Rs 5 lakh’, mainly originating from smaller cities.

During this year’s Budget, Finance Minister Nirmala Sitharaman proposed that insurance policies (excluding unit linked insurance plans or ULIPs) with an aggregate premium exceeding Rs 5 lakh, and the maturity amount, would not be exempt from tax.


This rule came into effect on April 1, 2023.

Speaking at the after-earnings analyst meeting, Niraj Shah, executive director and chief financial officer (CFO) of HDFC Life Insurance, said, “The business exceeding Rs 5 lakh has declined, but it still remains a meaningful contributor.”

He added that this segment constitutes nearly 6 per cent of HDFC Life’s business, experiencing negative growth.

Conversely, the ‘less than Rs 5 lakh policies’, accounting for 90 per cent of the company’s business, has seen an 18 per cent growth.

The growth in this segment has neutralised the impact on their overall ticket size.

Sharing a similar experience, Amrit Singh, CFO of Max Life Insurance, noted that the ‘less than Rs 5 lakh’ segment has grown at 21 per cent, whereas the more than Rs 5 lakh segment has also been growing but has moderated compared to the previous year.

Some companies observed the possibility of a shift from these policies to ULIP plans due to the tax exemption granted to the category.

According to the management of ICICI Prudential Life Insurance, the non-linked annualised premium equivalent (APE) mix declined from 28.8 per cent in the second quarter of 2022-23 to 25.8 per cent in the same period in 2023-24 (FY24).

On the other hand, the linked APE mix increased to 44.9 per cent in the second quarter (Q2) of FY24 from 41.1 per cent in the year-ago period.

This shift is attributed to a possible migration to linked products.

Non-linked products are insurance plans not linked to the stock market, and therefore, their returns are not based on market performance.

“One reason for the shift in the mix is a significant proportion of more than Rs 5 lakh ticket size, non-par business shifting to linked and part guarantee products, and this trend has been increasing month-on-month in Q2FY24,” the management stated during their after-earnings analyst meeting.

Furthermore, Dhiren Salian, CFO of ICICI Prudential Life Insurance, mentioned that “one level of migration was towards unit-linked plans.

"The second migration is towards participating plans”.

As a result of the tax imposition, insurers are witnessing a reduction in business from Tier-I cities due to the concentration of policies exceeding Rs 5 lakh in this region.

Meanwhile, Tier-II and Tier-III cities have been registering faster growth.

“We have seen Tier-II and Tier-III markets grow much faster for us, almost double what we have seen at the company level.

"Of course, Tier-I has had an impact this year because the greater than Rs 5 lakh ticket size normally concentrates in Tier-I,” said Suresh Badami, deputy managing director (MD) of HDFC Life Insurance.

Speaking on the impact of the tax reform, Siddhartha Mohanty, chairman of Life Insurance Corporation of India, mentioned that the life insurer had a very minimal impact on taxation.

“It will be very less, I think less than 2-3 per cent, not much on the premium side, and policy side it was something like 0.14 per cent.”

The life industry remains watchful of the growth numbers in the second half of the financial year.

“With the final phase of the financial year approaching, it will be an interesting time to see how the industry numbers pan out.

"I am confident that our strategies will enable us to tide through the phase,” noted Tarun Chugh, MD and chief executive officer of Bajaj Allianz Life Insurance.

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Aathira Varier
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