Page 52 - Insurance Times March 2023

Tax on high-premium policy may

hit life insurers' top line

he Budget proposal to tax income from "We don't expect this sale to completely disappear as
T traditional insurance policies, other than unit- among many levers, such as shifting to lower ticket size and

linked products (ULIPs), having premia above Rs
alternative products, we are confident of retaining a
5 lakh in a year is likely to impact growth of life
business) impact will be marginally lower than sales impact
insurance companies and their margins. There, on the other significant portion of the sale. The VNB (value of new
hand, could be demand for high-value policies now to avail as such high-ticket size policies do operate at lower
tax benefits, which only go away from April 1. margins," said Prashant Tripathy, CEO & MD of Max Life.

Through this decision, the government is aiming to plug the For IndiaFirst Life, non-ULIP policies exceeding Rs 5 Lakh of
arbitrage, which high-net-worth individuals (HNIs) are using premium have a single-digit contribution to our overall
to get tax-free returns on their high-value insurance policies business and the impact is expected to be muted, said
through Section 10(10D). Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance.

The stocks of life insurance companies reacted sharply to The impact of this decision by the central government will
the announcement of the finance minister, with most scrip be most felt in the guaranteed return products segment,
witnessing around 10 per cent fall in a day. However, of the as the rest of the non-ULIP products would fall below the
five life insurance companies that are listed on the bourses, Rs 5-lakh ticket size threshold proposed for taxation. The
only two -- HDFC Life Insurance and Max Financial Services government had earlier removed the tax exemption on ULIP
-- ended in the red. The rest -- Life Insurance Corporation proceeds received on maturity for the policies having premia
(LIC), ICICI Prudential Life Insurance, and SBI Life Insurance over Rs 2.5 lakh.
-- witnessed marginal gains in the share price.
"There is no indexation benefit and the entire gains will be
According to disclosures, ICICI Prudential Life Insurance's taxed at a marginal tax-rate irrespective of the policy
share of the business of non-unit linked policies with an tenure, which typically stands at 15 years. This will reduce
annual premium of above Rs 5 lakh is approximately 6 per the attractiveness of non-par policies and with the proposed
cent of total annualised premium equivalent for M9FY23. tax treatment, they will broadly come at par with bank-term
For Max Life, the same ratio stands at 9 per cent; for HDFC deposits," analysts at Motilal Oswal said in their report.
Life, it is over 10 per cent. However, for SBI Life, the impact
could be as less as 1 per cent. To sweeten the deal for customers, insurers may look to
sacrifice their margins and offer competitive rates in this
HDFC Life's management has indicated the likely impact on segment so that the flow of funds from high-net-worth
their company would be 10-12 per cent on the top line and individuals may not drop significantly.
less on the bottom line. And, the insurer will now strive to
sell more to middle-class customers. According to analysts at Emkay Research, it can be argued

The Insurance Times March 2023 45