Page 32 - Insurance Times March 2021

about 249 PSUs in 2018-19, of which 70 incurred losses of general insurance sector is, however, growing at a robust
Rs. 31,635 crore, according to data from the Standing annual pace of 18%, faster than in the previous years.
Conference of Public Enterprises. The decision to privatize Growth in this sector has picked up as COVID led more
two PSBs and one insurance firm underlines government's people to purchase health insurance policies. The average
commitment to limit its presence even in strategic sectors. growth in standalone health insurance is currently at 35-
The government will also come up with a revised mechanism 40%. Most private insurers in India have foreign JV partners
for timely closure of loss-making PSUs. The IRDAI has named who are expected to take advantage of the increased FDI
three public sector insurance companies - Life Insurance limit to beef up their shareholdings. To phase out old vehicles
Corporation (LIC), General Insurance Corporation (GIC Re) finance minister announced scrapping policy in the budget.
and New India Assurance - as 'too big or too important to
fail' (TBTF) institutions or Domestic Systemically Important This will encourage fuel efficiency and environmental health.
Insurers (D-SIIs) for the year 2020-21 fiscal year. This will have an impact on oil import also. The government
has also decided the age of your vehicles in the budget. Now,
Maturity Proceeds of ULIPs private vehicles will be able to run for 20 years and this limit
on commercial vehicles will be 15 years. According to an
Insurance penetration in India is currently at 3.7% of gross
HDFC Bank report, 20 million vehicles will not be able to run
domestic product (GDP) compared to the world average of
on the road until 2025 and with a scrap of these vehicles, a
6.31%. Growth in the life insurance sector has slowed to 11-
12% currently from 15-20% until fiscal 2020 as the pandemic new business worth Rs. 43,000 crores will be created. Apart
pushed customers to save cash instead of spending on stocks from this, the automobile sector will also get a new speed
and new employment opportunities will also be created.
or life insurance policies. The Finance Minister also proposed
that there be no tax exemption for maturity proceeds of That is, this step of the government can prove to be a game-
changer.
unit-linked insurance policies (ULIPs) with an annual
premium of above INR250,000 ($3,420). The rules will apply
for ULIPs issued on or after 1 February 2021. Under the
existing provisions of the Income Tax Act, there is no cap on
the amount of annual premium being paid by any person
during the term of the policy. Instances have come to notice
where high net worth individuals are claiming exemption
under this clause by investing in ULIPs with a huge premium.
Allowing such exemption in policy/policies with huge
premium defeats the legislative intent of this clause.

Enhanced FDI Cap
The Budget proposal to increase the foreign direct
investment limit for insurers to 74% from 49% is credit
positive, as it provides Indian insurers with new sources of
funding and access to external knowhow that can improve
their underwriting performance and unlock new operating
efficiencies. The possibility of higher foreign ownership would
improve insurers' financial flexibility by offering additional
Vehicle scrapping opportunities to bolster solvency. In addition, insurers would
In a boost for motor insurers, budget proposed a vehicle benefit from the sharing of risk management best practices,
scrapping policy as an initiative to tackle air pollution. The possibly leading to a lowering of exposure to high-risk assets
move would help to phase out old and unfit vehicles. The and adoption of risk-based capital management. Under the

32 The Insurance Times, March 2021