Health insurance may get a new regulator

According to one of the two people, the entry barriers for insurance may be eased, and insurers may get greater freedom to design their products.

The reforms will require amendments to India’s insurance laws. The aim is to raise insurance penetration in line with the regulator’s mission of ‘Insurance For All By 2047’.

According to Swiss Re, one of the world’s largest reinsurers, insurance penetration in FY24 globally is expected to be 6.5%; in India, penetration is expected at 3.8%. Life insurance penetration in India is projected at 2.9% and non-life insurance at 1% in FY24.

Insurance penetration is measured as a percentage of total premiums collected to the country’s gross domestic product. It is one of the parameters used to assess the level of development of the insurance sector in a country.

Questions emailed to the finance ministry remained unanswered till press time.

The reform initiative would also spell out a plan to get the GST Council on board to reduce the goods and services tax on health insurance policies, which currently stands at 18%. The industry has sought tax treatment for health policies at par with life insurance, which attracts 5% tax.

“Reforms are required in the insurance sector if the mission of ‘Insurance For All By 2047’ is to be achieved. Insurance penetration in the country is low, and the situation in health is even worse. The government should definitely reconsider 18% GST on health insurance," said Devansh Sharma, who runs a chartered accountancy firm in Delhi.

Another proposal is to raise the income tax deduction level for health insurance premiums from the current ₹25,000 (self and family) to ₹50,000, while raising this further for senior citizens. However, no view on this has been taken so far, the people cited above said.

Separately, digital banking units (DBUs) may be allowed to provide more financial products, including insurance policies and other products, to advance financial inclusion. This initiative may be launched first in a set of 75 new DBUs, and later in every new DBU.

“The idea is to extend basic digital services for delivering a whole host of financial products through the infrastructure set up under DBUs. This will help DBUs to turn into a major vehicle of financial inclusion, bringing banking and financial services to the doorstep of people in unbanked areas with limited financial services," said one of the two people cited above.

A DBU is a specialized fixed point business unit or hub housing certain minimum digital infrastructure for delivering digital banking products and services, as well as servicing existing financial products and services digitally, in both self-service and assisted mode.

The government may also bring stringent norms to curb misselling of insurance in coordination with the Insurance Regulatory and Development Authority of India (Irdai). It may also facilitate opening of the agency channel for the general insurance industry to increase insurance penetration.

Meanwhile, the government feels the need for a separate health insurance regulator to make health insurance affordable for all while addressing issues such as standardization of treatment costs and fast settlement of claims. The finance ministry has been in touch with the health ministry over this for some time and a definite plan is now likely to be unveiled.

According to CareEdge estimates, India’s non-life insurance market will grow by approximately 13-15% over the medium term. The health insurance segment is on track to breach the ₹1 trillion mark, while motor insurance premiums may cross ₹85,000 crore in FY24, given the fact that they have already crossed ₹90,000 crore and ₹80,000 crore, respectively, last year, the ratings company said.