The insurance sector has had a neutral reaction to the 2012 budget. Most experts believe the hike in service tax will not affect the sector. Industry experts said that while in the past it was a common practice for companies to pay the service tax charges incurred by their agents. The recent trend was towards slowly passing these charges on to the customers and hence the rise in service tax does not pose a major threat to revenues.
While the insurance industry’s main demand from this budget was for the Foreign Direct Investment cap in Insurance to be raised from 26 percent to 49 percent, experts believe that this demand will take longer. Although the finance minister has announced an amendment to the laws, experts believe that this announcement is a routine one. The Insurance Laws (Amendment) Bill will allow an increase of FDI in Indian insurance companies’ up to 49 percent from the current ceiling of 26 percent. The bill also proposes to do away with the provision of Indian promoters of insurance companies having to reduce their stakes to 26 percent over a period of time.
The proposal to tax customers on policy maturity has also put the life insurance industry on its guard. Industry insiders believe that this will lead to a loss of business and make insurance unattractive to investors.
The budget has been received with no cheer by the insurance industry as top executives believe that nothing much has changed for them post the budget. The word “status-quo” is the most popular way to describe the reaction of the Indian insurance industry to the Budget 2012 proposals.
However, despite all this, the insurance industry is enthused as the Pension Fund Authority and the Banking sector reforms which the finance minister has spoken about during the budget. The proposed re capitalization of banks will benefit the insurance sector as they work very closely with the PSU banks and are the main players in India’s financial sector.
One insurance industry insider said that the increase in service tax would result in a situation where the premiums of policies could vary by up to 1.5 percent from their current rates. The additional tax relief given to those investing in infrastructure bonds will not affect the insurance industry is what the pundits believe. The common man’s view is that the raising of the income tax slabs has ensured that they have a slightly larger sum of money to invest or spend. Most insurance companies will try and target this disposable income.
In conclusion, while this budget hasn’t done anything to make the insurance industry go wild with joy, they aren’t holding their heads in despair either. The amendments proposed by the Finance Minister point to great opportunities in the future, for the insurance industry.
Chris has a strong expertise of working in insurance sector for over a decade now. He shares his deep insights on budget, life insurance, other types of insurance available in market, investment options, tax saving tips, financial planning and more.