Recent Union Budgets have focussed significantly on social security measures with the objective of moving towards a universal social security system for all, especially the poor and the underprivileged. There has been increased focus on the National Pension Scheme as well as health and life cover schemes. The launch of various insurance schemes under the Jan Suraksha umbrella reflects such an intent.
Some low premium insurance schemes include the Pradhan Mantri Suraksha Bima Yojna offering accidental death-cum-disability cover of Rs 2 lakh for partial/permanent disability to all savings bank account holders in the age group of 18-70 years, for a premium of Rs 12 per annum per subscriber. The Pradhan Mantri Jeevan Jyoti Bima Yojana, on the other hand, offers life cover of Rs 2 lakh to all savings bank account holders in the age group of 18-50 years, covering death due to any reason, for a premium of Rs 330 per annum per subscriber.
Undeniably, as a nation, we have a long way to go in terms of enhanced life coverage and enhanced health insurance benefits. The importance of having a financial support to the family in the event of the death of the bread winner or having a health insurance cover to meet the contingencies of ill health cannot be overstated. Measures to spur insurance penetration in India therefore need significant focus in the forthcoming Budget.
Insurance penetration reflects the level of development of the insurance sector in any country. It is measured as the percentage of insurance premium to the GDP. It is a key benchmark used globally to assess the growth of insurance premium vis-a-vis the growth of GDP of an economy. The Indian benchmark, which was indicating a declining trend since 2009, reversed and took a northward direction reflecting a positive trend since 2015; it is currently at 3.42% (source: IRDA).
However, this is significantly lower than the global average of 6.2%. Perceiving insurance as an investment option rather than as viewing the same as a life cover option could be one of the reasons why insurance penetration is low in India. Measures to educate the masses on the importance of insurance along with incentives to encourage insurance by individuals will go a long way in increasing the insurance penetration. This is more so given the backdrop of increasing health care costs.
Insurance services attract a GST of 18%. This is applicable to life and health cover as well. Exempting pure term life cover plans and health insurance from the levy of GST, would help in reducing the cost and widen the reach of insurance cover more to more individuals.
Increasing income tax incentives would also bring more focus to insurance coverage. Health insurance costs for family floater schemes and coverage of pre-existing diseases such as cancer could be significantly high. Currently, the deduction under section 80D of the IT Act is capped at Rs. 25,000 for self, spouse and dependent children. An additional deduction of Rs. 25,000 is available for parents. The ceiling is increased to Rs 30,000 in case of senior citizens. This also includes the expenses towards preventive health check-up. The government should consider providing a separate deduction for preventive health, so that deduction provided under Section 80D are exclusively available for health insurance.
Further, the cap on deduction should also be significantly raised, given rising medical costs and the unavailability of a government-sponsored comprehensive healthcare system. An increase in the deduction limits would increase health insurance which is very important in an economy where public health benefits are mostly absent and universal health protection scheme has not yet taken off.
Premium costs for life cover are eligible for tax deduction under Section 80C but are however capped at an overall deduction of Rs 1.5 lakh along with PF contributions, investments in PPF, housing loan repayments, tuition fee payment for children etc. Pure life cover needs to be significantly encouraged by providing for a specific deduction for life insurance premium. A separate carve-out for insurance payments which provide for pension related benefits, should also be provided.
In short, there needs to be a sustained focus on enhancing social security benefits to the population at large. Formalising the draft Labour Code on Social Security, which aims at universal coverage, will go a long way in meeting these objectives.
Saraswathi Kasturirangan is Partner, Deloitte India and Vijay Bharech is manager with Deloitte Haskins and Sells LLP