Cut GST rate on insurance, allow composite licensing: House panel

To ensure insurance for all by 2047, a Parliamentary panel has recommended a slew of measures including a reduction in the Goods and Services Tax rate on health and term insurance from 18%, the introduction of composite licensing to undertake all types of insurance business and allowing the Ayushman Bharat health insurance scheme for the middle class on a paid basis.

In its report on the performance review and regulation of the insurance sector tabled in the Lok Sabha on Tuesday, the Parliamentary Standing Committee on Finance recommended strengthening public sector general insurance companies and reserving a portion of 50-year government bonds for insurers to cater to their long-term investment requirement.

Insurance penetration was 4.2% in India in 2021 while the global average was 7%. Moreover, the Indian insurance sector is heavily tilted towards the life insurance segment which has a share of 76%. Globally, the share of the life insurance business in total premiums was 43.7% and the share of non-life insurance premiums was 56.3% in 2021.

A vibrant insurance sector fosters market stability, absorbs financial shocks, provides long-term patient capital, attracts Foreign Direct Investment, and generates employment.

 

The Committee felt that there is a need to rationalise the GST rate on insurance products, especially health and term insurance, which is 18% at present. “The Committee with a view to make insurance more affordable, recommend that GST rates applicable to health insurance products, particularly retail policies for senior citizens and microinsurance policies (up to limits prescribed under PMJAY, presently Rs 5 lakh) and term policies may be reduced,” it said.

To promote microinsurance that plays an important role in financial inclusion and poverty alleviation, the panel headed by BJP MP Jayant Sinha recommend that new microinsurance products need to be developed and provided as affordably as possible for targeted groups for risks such as health, crop, life, etc. It recommended a lower capital requirement than the mandated requirement of a minimum Rs 100 crore, for such players.

The Insurance Act, 1938, and the regulations of the Insurance Regulatory Development Authority of India do not allow composite licensing for an insurer to undertake life, general, or health insurance under one entity.

However, the Committee are of the view that allowing composite licensing could provide further impetus to the insurance sector owing to its various benefits. “It can cut costs and compliance hassles for insurers, as they can run different It can also offer customers more choice and value, such as a single policy that covers life, health, and savings,” the panel said.

To enable composite licensing, the government and the IRDAI are planning to bring amendments to the existing insurance legislation. The panel suggested that the government in consultation with stakeholders find solutions to composite licensing issues such as different risks and returns from different types of insurance; the accounting and reporting standards as they have to keep separate funds and records for different types of insurance; etc.

Considering that many people in the country are just one medical bill away from slipping into poverty, the panel recommended that Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY) scheme be extended to the ‘missing middle’ on a paid basis. PMJAY offers Rs 5-lakh-a-year free health cover to 107 million poor households (accounting for 40% of the population).

According to a Niti Aayog report unveiled in October 2021, at least 30% of the population, or 400 million individuals – called the missing middle in this report – are devoid of any financial protection for health.

The PMJAY launched in September 2018, and State Government extension schemes, provide comprehensive hospitalization cover to the bottom 50% of the population or around 700 million individuals. Around 20% of the population or 250 million individuals – are covered through social health insurance and private voluntary health insurance.

Source::: FINANCIAL EXPRESS,  dated 07/02/2024.