The life insurance industry has reported a lacklustre performance in the first six months of the financial year 2023-24 (FY24) with the new business premium falling 12.97 per cent, mainly due to the decline in premium mobilisation by Life Insurance Corporation (LIC) and the changes in the tax structure in high value policies.
Total premium collection (new business) declined to Rs 158,376 crore during the six months as against Rs 181,976 crore in the same period a year ago. LIC’s premium collection fell to Rs 92,642 crore during the period from Rs 124,191 crore. LIC’s group single premium for the six months witnessed the maximum decline at Rs 64,522 crore as against Rs 96,878 crore a year ago.
The poor performance of the industry is also evident from the number of policies which remained flat at 11.764 million during the six months ended September 2023 as against 11.766 million policies a year ago. “At this rate, the life industry won’t be able to achieve the last year’s new business premium of Rs 3.70 lakh crore. The poor show is despite the regulator launching several initiatives to increase insurance penetration,” said an insurance official.
A pivotal development impacting the industry has been the imposition of the new tax regime. This regulatory change, effective from April 01, 2023, has had visible implications on the sector’s activities during this period, consequently leading to a subdued performance in the first half of FY24. Consequently, in the first half, the new business premium for life insurers has witnessed a contraction. This downturn can be attributed to the deceleration in group business, according to a Care Ratings report.
The Union budget 2023 removed the tax incentives on income from high-value insurance policies. The new rule was announced in an attempt to limit the undue tax-saving advantage enjoyed by high net-worth individuals (HNIs) because of the tax exemptions on insurance policies. Similarly, in the previous budget, tax exemptions for ULIPs with premiums above Rs 2.5 lakh were removed. If a savings insurance policy has a premium of more than Rs 5 lakh, the maturity benefit or income from the policy will be taxed.
The private insurance sector, however, played a mitigating role by partially counteracting the dip in LIC premiums. While private insurance companies have maintained growth, their pace was comparatively subdued in comparison to the previous year. Total new business of private players rose 13.75 per cent to Rs 65,734 crore in the first half of FY24.
The private sector has a larger share in the non-single sub-segment (mainly individual premiums), while LIC continues to dominate the single premium sub-segment, especially the group business. Pension plans, general annuity and group gratuity schemes account for a significant chunk of the group while general annuity plans dominate individual single premiums, Care Ratings said.
One reason for the lacklustre show is that insurers are not keen on focussing on non-participating policies. A non-participating policy does not share the surplus earnings, and therefore does not receive a dividend payment. That is profits are not invested in non-participating programmes and no distributions are paid out to policyholders. It will be retained in the company, thus boosting the overall profitability of the insurer.
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According to a PwC India report, while the Indian insurance industry continues to grow year-on-year on the back of varied factors, the life insurance market penetration remains at 3.2 per cent as of 2021 due to increasing protection deficit and limited distribution reach, among other reasons.
IRDAI Chairman Debasish Panda recently said the proposed amendments to Insurance Act aim to create a more robust, facilitative and supportive insurance landscape offering more choice, flexibility and scope for innovation. The regulator is planning to allow new players in the form of micro, captive, regional, specialized, composite insurers catering to the needs of different geographies and strata of the populations.
Other IRDAI measures include different capital requirements based on risk for different entities, various value-added services coupled with the insurance plans, more flexibility in investments resulting in faster adaptation to market dynamics and various financial products on offer by insurance companies.
