Page 16 - Insurance Times December 2020

the policy term and not the premium losses. ICAI said that this limit is "not ing on the increased awareness of in-
to sum assured ratio, which is being sufficient". surance among consumers amid a pan-
currently done. demic. Also, the surge in demand for
At present, tax exemption under Sec- Life insurers register 32% term products, as well as guaranteed

tion 10 (10D) is based on the premium increase in new business products, helped in recovery.
to actual capital sum assured ratio. Experts see the demand increasing as
Because of this, life insurance policies premium income life insurance is becoming a "pull prod-
with a higher premium due to age fac- Life insurers reported a 32 per cent uct rather than a push product". They
tor, occupational/lifestyle diseases etc. jump in new business premiums (NBP) expect Q3 to be better than Q1 and as
gets treated as taxable. And, policy- in October, helped by healthy growth good as Q2, if not better.
holders who need insurance cover are in single premiums and group non-
denied tax relief due to higher premi- single premiums. This comes after the Bharti AXA Life Insurance
ums, ICAI noted. industry saw a 16 per cent rise in NBP reports 10% rise in re-
in the September quarter.
To provide relief to such policyholders, newal premium
the ICAI has suggested the govern- Life insurers, 24 in total, earned NBP
ment that the "tax exemption should of Rs 22,776 crore in October, com- Bharti AXA Life Insurance said it has
not be linked based on premium to sum pared to Rs 17,271.86 crore in the registered a 10 percent increase in
assured ratio." corresponding period last year. In Sep- renewal premium at Rs 594 crore in
tember, NBP was up 26.47 per cent at the first half of the current fiscal year.
Instead, "all LIPs with policy term of 10 Rs 25,366.32 crore.
years or more should be exempt," ICAI The company's renewal premium
said. The numbers are in sharp contrast with stood at Rs 541 crore in April-Septem-
the decline in business seen by insur- ber of fiscal year 2019-20, Bharti AXA
ICAI added that tax exemption based ers in the initial days of the Covid-19 Life Insurance said in a release.
on policy term will help in medium to pandemic. In Q1FY21, NBP had plum- The COVID-19 crisis and subsequent
long term investments. meted more than 18 per cent due to disruptions hit the company's new busi-
Currently, any sum received under life the pandemic-induced lockdowns im- ness premium income, which stood at
insurance policies not exempt under posed across the country to curb the Rs 318 crore in the half-year ended
section 10 (10D) are taxable. ICAI says spread of Covid-19. September 30, 2020 as compared with
that the deduction of only premium LIC led the growth in October, with its Rs 415 crore in the same period dur-
while computing the net income/loss NBP up 36 per cent at Rs 15,548 crore, ing 2019-20, it said.
after surrender/withdrawal of policy compared to Rs 11,422 crore in the Annualized new business premium was
doesn't take care of inflation resulting same period last year. The private in- at Rs 207 crore in the first six months
in higher taxability. surers, on the other hand, saw their of financial year 2020-21. Total pre-
To solve this issue, ICAI suggests that NBP grow 23.5 per cent to Rs 7,228 mium income fell moderately to Rs 912
life insurance policies should be treated crore, compared to Rs 5,849.71 crore crore in April-September period of this
as a capital asset falling within the in the year-ago period. fiscal from Rs 956 crore in the first six
definition of "property" under Section In the first seven months of FY21, NBP months of previous financial year, the
2(4) of the Income Tax Act. has gone up a marginal 3.13 per cent insurer said.
"Indexation benefit (for premiums to Rs 1.47 trillion, compared to Rs 1.43 The ongoing pandemic notwithstand-
paid) will take care of inflationary im- trillion in the corresponding period a ing, the company recorded a surge of
pact- resulting in parity with other capi- year ago. While private insurers' NBP 25 per cent in its assets under manage-
tal assets," the Institute said. grew almost 6 per cent in the April- ment at Rs 7,987 crore in the first half
The ICAI has also suggested that insur- October period to Rs 43,937.59 crore, of 2020-21 as against Rs 6,404 crore
ance companies should be allowed to LIC's NBP grew 2.13 per cent to Rs in the corresponding period of the last
carry forward and set-off unabsorbed 1.03 trillion. fiscal, it said.
business losses for an indefinite period. The industry bounced back as insurers, "The spread of COVID-19 pandemic
Currently, there is a limit of 8 years for especially the large ones, managed to has impacted the economy and the
carry forward and set off of business digitise their selling process, capitalis- business sentiment in the short-term.
The Insurance Times, December 2020