With the Budget stating that life insurance policies issued after April 1 this year must meet the 10x criteria to claim 80C tax benefits, single premium products with low sum assured will go out of market, says Kamalji Sahay, MD & CEO, Star Union Dai-ichi Life Insurance. In an interview to FE’s Saikat Neogi, he says single premium policies can be made tax-efficient by adding term insurance premium to the original premium rate, which could enhance risk cover up to 10 times the total premium paid.
How should the industry look at the simplification of policy documents, especially in the health insurance segment?
A policy document takes care of two major aspects: the first one is the ?contract? between the proposer and the insurance company; and the second is regarding the features of the product provided under the contract to the policyholder. The first part has to be a standard one, clearly articulating the terms and conditions of contract that are common to most policies. The second part needs to be stated in simple language and pointwise, without any feature being subject to conditions, except of payment of premium within the grace period. A policy document in respect of health insurance should clearly state the eligibility of the policyholder for getting the benefits under the policy and the nature of benefits available. Exclusions must be few and stated in bold letters. Long description and plethora of conditions must be avoided. I feel that a life insurance policy should be a simple and brief document.
Will the Budget provision to offer risk protection of at least 10 times the annual premium to be eligible for the tax benefit under Sections 80C and 10(10D) impact single premium products the most? How will you tweak your products?
Single premium products with low sum assured will go out of market. Apart from the deduction under Section 80C, what makes savings through life insurance more attractive is the benefit of collecting entire maturity or death claim proceeds without payment of tax under Section 10(10D).
We will have to redesign all our endowment products by providing minimum term of 15-20 years to ensure risk cover that is 10 times the annual premium. Single premium policies can be made tax-efficient by adding term insurance premium to the original premium rate, which could enhance risk cover up to 10 times the total premium paid. The single premium policy would become costlier in case tax benefits are desired, either at thr payment stage or at maturity. But it will surely serve the purpose of insurance better.
Since the new definition of sum assured excludes the bonus amount received for claiming tax deductions, will this also impact sales of insurance policies?
No, this will help design attractive products. The government has been kind to exclude the bonus amount from the definition of sum assured for the purpose of receiving tax-free maturity proceeds. I think this would ultimately prove to be a progressive idea and will be beneficial for the industry as well as for policyholders. I believe that this new provision in tax laws captures the essence of life insurance. This provision should make a positive impact on sale of policies.
Do you think the increase in service tax from 10-12% will be passed on to the consumer or would companies be able to bear a part of it?
I think no company would bear the increase in service tax. We are already working on very thin margin.
Going forward, do you think the life insurance industry will be able to recover the steep decline in the first year premium collection that companies reported last fiscal?
I think, in the current year, companies should be able to recover from the negative growth that they experienced during the last financial year. The strategies that various companies have developed to deal with the difficult situation should start yielding results in the current year.
Do you think the idea to rope in banking correspondents to sell micro insurance products will work? What are the checks one should put in place?
The idea of roping in banking correspondents to sell micro insurance products is convincing and practical. However, such correspondents will have to be trained thoroughly by insurance companies. They should be held accountable for the identity of the person and about his health and other conditions influencing the risk undertaken by the insurer. I believe training is the only tool that can help companies utilise the vast number of banking correspondents in the market. Marketing of micro insurance through banking correspondents will help the industry achieve higher penetration.
The finance minister had pointed out in his speech to the board of director of Irda last week that the regulatory environment should be conducive to changes while the regulator has sought broad guidelines as opposed to micro management. How do you think that should change for the growth of the industry?
I think the finance minister has given a broad hint to all regulatory bodies about their roles. In fact, companies are autonomous organisations committed to healthy development of the industry and also to the various stake-holders to provide them value through the business. The companies, therefore, need to be given an environment where they can do business within certain guidelines for earning reasonable profit and for providing best-in-class service.
The companies are expected to follow governance guidelines and also manage various market forces to stay in business. Hence, there is not much of need for any other authority to handhold the company for everything that they are expected to do for managing the business.
