Proposed reforms to boost insurance penetration
Enhanced tax deductions for health and life insurance
Tax incentives are a proven strategy to increase insurance adoption in India.
Aftab Chaz, Associate Director and Business Head at Elephant.in, emphasises that raising the Section 80D limit for health insurance premiums from the current ₹25,000 to ₹50,000 could make policies more affordable, especially for middle-income families.
For senior citizens, the limit could be doubled to ₹1 lakh.
Rajiv Gupta, President of PB Fintech, suggests introducing a separate tax exemption category for term insurance under Section 80C.
Currently, the ₹1.50 lakh limit under Section 80C is shared with other investments like PPF and ELSS, limiting its utility for life insurance.
This move would encourage individuals to invest in term plans, reducing India’s protection gap.
Reducing GST on insurance premiums
The 18% GST on insurance premiums remains a barrier for many low-income households. A reduction to 5%, as proposed by industry leaders, would significantly lower policy costs, driving greater accessibility and affordability.
Incentivising long-term policies and retirement planning
Tax benefits for long-term insurance policies (exceeding 10 years) can motivate customers to commit to sustained financial planning. Additionally, reforms in taxation on pension and annuity products are critical.
Gupta highlights the need to exempt annuity income from taxation, aligning it with the National Pension Scheme (NPS).
This would make retirement products more attractive and ensure financial stability for India’s growing elderly population.
Boosting innovation through technology and FDI
Easing procedural hurdles for Foreign Direct Investment (FDI) beyond the current 74% cap could attract much-needed capital into the sector.
Chaz points out that these funds could help insurers expand into underserved areas, underwrite larger risks, and invest in emerging technologies like AI and blockchain.
Incentives for technology adoption would further improve efficiency and customer experience. For instance, AI-driven claim processing can reduce turnaround times, while blockchain can enhance data security and fraud prevention.
Addressing climate risks through catastrophe insurance
Climate change is increasing the frequency and severity of natural disasters, impacting communities and businesses. Tax incentives for catastrophe insurance could encourage adoption, safeguarding vulnerable regions against financial losses.
