Plans

Close on the heels of negative impact it suffered following new guidelines on unit linked insurance policies (Ulips) in last September, Life Insurance Council, the lobby body of India’s 23 life insurers, is now apprehensive that the proposed direct tax code (DTC) will hit it badly.

SB Mathur, secretary general of Life Insurance Council, said, “The proposals in DTC provided unfair treatment to pensions by life insurance companies and the withdrawal of tax benefits to policies less than 20 years of term was also a major dampener.”

He spoke to reporters in Hyderabad on Monday after chairing the meeting of the fourth life insurance chief executive officers round table, which was attended by the chiefs and representatives of all the 23 life insurers. “This view (on DTC impacting life insurance sector) was also echoed by the CEOs present at the conference,” he said.

The Indian life insurance industry, which has the world’s largest number of policies in-force at 32.54 crore, suffered a setback during 2010-11 with new guidelines on Ulips slowing down the growth in premium business at eight per cent to Rs 2,86,500 crore from Rs 2,65,450 crore a year ago.

MN Rao, managing director and chief executive officer of SBI Life Insurance, said the Indian life insurance sector expects to post a moderate growth of 10-15 per cent during the current financial year. “The renewal premiums were a challenge last year and all the life insurance companies will this financial year be focusing on renewal premiums as they would be the ultimate profit drivers.”

Saying that the insurance premium will qualify for tax deductions only if premium paid for any of the years is less than five per cent of sum assured under the proposed DTC, Mathur said, “It will deny benefits to large number of policyholders since typically for age 30 years minimum term will be around 21 or 22 years and for age 40 and above years term will be 25-26 years.”

Further, Mathur said, “It will lead to inequity as for same term and sum assured, tax exemption would be available to say a 30 years old person but not to 40 years old person because of higher term assurance content.”

Life council views that the proposed DTC will also deny benefits to large number of people with irregular income such as persons working in the agriculture sector, he said.

Malay Ghosh, executive director and president of Reliance Life Insurance, said under the proposed DTC, the sum assured has to be at least 20 times of the premium, while the life council viewed that 10 times the premium was reasonable. DTC proposes that the limit of life insurance premium eligible for exemption be Rs 50,000, shared with health insurance and tuition fee. However, life council favored a separate window of at least Rs 1,00,000 to motivate people to avail the essential social security and long-term savings.

Ghosh said DTC as of now is not clear on tax exemptions the existing policyholders who bought the policy expecting exemptions. The life council has represented that the exemptions be allowed to the existing policyholders till DTC comes into force.

Mathur said the new guidelines on Ulips have forced the life insurers to trim costs, which led to the number of direct employees coming down to 2.42 lakh from 2.67 lakh a year ago, the number of agents to 26.47 lakh from 29.78 lakh and the number of branches to 11,465 from 12,018 a year ago.