Union Budget 2020: Degrowth in the auto sector and an overall slowdown in the economy have resulted in a slowdown in non-life insurance premiums as well. The finance minister in the upcoming budget could announce measures to stimulate the economy by addressing specific sectors.
Changes that need to brought
There are certain measures that the street is anticipating, this includes cut in Personal Income tax, GST rate cuts in the auto sector, increase in tax sops to boost the housing sector, etc. Such measures would revive consumer sentiments and bring back the domestic consumption story, resulting in higher sales in auto and other sectors. This would help improve sales of non-life Insurance products.
Increase insurance penetration
As long as the going is good, people don't feel that there is a need for any insurance protection. Purchasing any kind of insurance is still looked at as a cost rather than a protection from adverse financial situations. This has resulted in lower penetration of insurance, despite a lot of measures announced by the government as well as the regulator.
To increase the penetration of non-life insurance, the government can bring in more tax benefits, include more products under mandatory insurance cover and roll out more mass insurance schemes. Standardization of policy documents across various Insurance products like health or home insurance could help in a better understanding of insurance products.
A major part of household savings goes into the purchase of the property. The dream of owning a house may just get washed away in a natural calamity. In recent times, there have been quite a few natural calamities, resulting in property losses for the uninsured. Making home insurance mandatory at the time of purchase of the property or giving special rebates (similar to health Insurance) for insurance of houses could incentivize people to buy home insurance. Additionally, the government could roll out a mass product scheme similar to its flagship programs like PMJSBY, PMFBY, etc. for compulsory home insurance under affordable housing.
Income tax deduction
The government may also revisit the Income-tax deductions available under Section 80D for health insurance and could revise the same upwards. Given the ever-increasing medical costs, the finance minister could announce a higher tax rebate under Section 80D from current Rs 25,000 to Rs 50,000 for self and for dependent parents (age above 60 years) to Rs 75,000 from Rs 50,000. Also, the government could make health insurance mandatory for all employers in the unorganized sector as well.
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Goods and Service Tax (GST)
While GST is not under the purview of the budget but the finance minister could subsidize the payment of GST under its flagship schemes like PMFBY or for mandatory Insurance products. Currently, the insurance premiums are taxed at a GST rate of 18 per cent which increases the cost to purchase any non-life insurance. Given that the purchase of such a policy is not done for investment purposes, the government could either lower the applicable GST rate for insurance premiums or could exempt it for policies with a minimal cover or for policies issued under the flagship Insurance programs like PMFBY.
By Parimal Heda, Chief Investment Officer, Digit Insurance