IRDAI, the insurance regulator, is working with life insurance players to address the decline in insurance penetration in the country. IRDAI data shows that life insurance penetration has come down from 3.2 per cent of GDP in 2021-22 to 2.8 per cent in 2023- 24, and is lower than the world average of 2.9 per cent.
“We have taken note of this. We are considering internally as to what are the steps that as a regulator we can take and work with the industry to bring it back to levels that are acceptable,” said IRDAI whole time member (life) Swaminathan Iyer.
As part of the initiative, the Life Insurance Council — the industry body of all life insurance companies in India — on Wednesday launched an awareness campaign to improve the insurance penetration and to bring on track the goal of the regulator to have a wider insurance coverage in the country by 2047.
Kamlesh Rao, member of the executive committee of the Life Insurance Council, said that a budget of ₹150 crore would be spent every year over the next three years to improve insurance awareness and increase penetration and density in the country.
The Insurance Awareness Committee launched the campaign with the theme ‘Sabse Pehle Life Insurance’, which will have contributions from all life insurance players on the basis of their premium incomes. A survey done by the council also revealed that while people are aware and have taken cover, it may be inadequate for them. Awareness campaigns such as ‘Mutual Fund Sahi Hai’ have contributed significantly to the growth of mutual fund assets under management and life insurers hope that the present campaign could lead to similar success.
Changing benefits
The life insurance sector has undergone significant changes over the past few years, both from a regulatory as well as from a taxation perspective. While regulatory measures such as use and file, expenses of management, surrender value changes, etc. have been aimed towards ease of business and protection of policyholders, major changes on the taxation side have also influenced the purchase of policies.
Union Budget 2021 had introduced amendments to section 10(10D) of the Income Tax Act, which capped the exemption benefits in unit-linked insurance policies (ULIP) only if the aggregate annual premium paid is below ₹2.50 lakh. In 2023, the section was further amended to remove the exemption available to the sum received from a life insurance policy (other than ULIP) in case the aggregate premium exceeds ₹5 lakh.
Around 75 per cent of taxpayers have already migrated to a new tax regime which does not offer any tax exemption under section 80C on life insurance premium paid.
Industry sources said that separate tax breaks for term life insurance and lowering of GST rates have been an industry demand with the government for a long time.