New Delhi, Oct. 1: Finance minister P. Chidambaram today decided to allow banks to act as insurance brokers, enabling them to sell products of multiple insurers.
At present, banks can sell products of just one insurance company through the bancassurance route.
The finance minister said banks should act as brokers and the fiduciary responsibility of the bank would be to the policyholders.
Chidambaram said the Insurance Regulatory and Development Authority (IRDA) would consider relaxing norms for investing in debt instruments to encourage a greater flow of funds into securities other than the AAA-rated ones.
Under the existing rules, insurers are required to put 75 per cent of their debt market investment into AAA-rated securities.
The proposed relaxation is “expected to release funds for investments in less than AAA-rated debt instruments”, Chidambaram told reporters.
G.V. Nageswara Rao, managing director & CEO of IDBI Federal Life Insurance, said, “The relaxation in investment norms for insurance companies investing in debt instruments will help the companies’ earnings and ensure better returns for their investors. These returns can be expected to be passed down to the customers in the form of better benefits and lower premium.”
The government is also contemplating a slew of tax incentives to make life insurance policies more attractive .
The finance ministry is weighing the possibility of exempting first-year premium from service tax and extending the scope of tax exemption schemes.
Other issues include tax treatment of annuity products on a par with the New Pension Scheme and tax deducted at source on commissions paid to agents.
“I have asked the department of revenue and CBDT/CBEC to complete the examination of (various) suggestions by October 10 so that appropriate decisions may be announced shortly thereafter,” said Chidambaram.
The minister said he has also asked the Central Board of Excise and Customs (CBEC) to look at the possibility of reducing service tax on first-year regular premium as well as single-premium policies.
Chidambaram had earlier met the heads of life insurance companies and IRDA chairman J. Hari Narayan to work out steps to boost the insurance sector.
The revenue department, Chidambaram said, would also look into the proposal of exempting annuity policy from service tax in line with the National Pension Scheme.
“The new avenue for tax exemption would allow some insurance pension products to be included in a separate limit over and above Rs 1 lakh under Section 80(C). Tax benefits are critical for insurance sales as indicated by the fact that most sales happen in the last financial quarter of the year. Creation of a separate limit outside 80(C) will be a great boost to insurance sales. It will give people an additional avenue to save tax, time and provide security during retirement,” Rao said.