Insurance rejig to give tax breaks, easier policy terms

Pension Plans May Get More I-T Exemption New Delhi: The government on Monday announced a raft of new measures—including a simpler policy structure, easier know your customer (KYC) norms and possible tax breaks — aimed at providing a fillip to the insurance sector which is expected to generate long-term funds for investment, especially for infrastructure.      A decision on tax benefits ranging from service tax exemption for certain policies to additional exemption for investment in pension plans anddeduction for post-retirement medical scheme is expected by October 10, finance minister P Chidambaram told reporters while announcing the measures which he had promised soon after taking charge in August. The measures related to service tax can be implemented through notifications, but income tax-related changes may have to wait until the budget as the law needs to be amended.      This is the latest in a series of steps announced by the government since September 13 which are aimed at reviving investor sentiment and boosting growth. For life insurance firms, the moves would provide a lifeline amid falling sales, which dipped 9% during the last fiscal and were down over 3% during April-August 2012.      While the steps have been announced, the issues related to change in norms have to be notified by the insurance regulator IRDA, resulting in some scepticism. "On the face of it, they look positive. But it depends on how they are implemented," said HDFC Standard Life MD & CEO Amitabh Chaudhry, pointing to earlier attempts to fast-track product approvals, a key element of Chidambaram's game plan. WHAT'S IN IT FOR YOU?      Simpler policies and more choice for consumers      Fresh tax sops likely      More choice of companies at bank branches as they can sell products of more than one insurer      Apart from employers, employees and RWA members can also buy group insurance  HOW COMPANIES GAIN      Faster rollout that is likely to result in more innovation  More flexibility in managing expenses  BENEFITS FOR ECONOMY  Private sector infrastructure firms to get a boost from the new investment norms Second rung companies can hope to get more funds via bonds Higher sales will result in access to more long-term funds for government and corporate sector Life covers to be simplified, KYC won't be a barrier      Another key step in the government's package, finalized after talks with the industry and the regulator, relates to simpler terms of life insurance policies aimed at removing the clutter that has come to be associated with such covers. Several investors have shied away from buying insurance policies due to the complicated structure.      "This is truly transformational. It addresses the core issue which is customer satisfaction. It will result in simpler products which are easy to understand along with protecting their interests," said ICICI Prudential MD & CEO Sandeep Bakshi. In addition, KYC or the requirement to submit a fresh set of documents establishing the identity and address will no longer hamper policy purchases as a check done by a bank at the time of opening an accountwill be used for insurance too.      To get more people on board and cover their risks, IRDA will issue guidelines which will allow homogenous groups such as taxi drivers, nurses or even members of resident welfare associations to come together to buy life insurance. Currently, only employer-employee groups are recognized for group business, the finance minister said. He also promised to end the arbitrage between "units" and traditional policies such as money-back, which the industry viewed as a pointer to an across-the-board reduction in commission paid to agents, which can be as high as 40% in some cases. "It appears to be a move to realign the commission and expense  structure and bring the traditional products in line with Ulips," said Reliance Capital CEO Sam Ghosh.      To address complaints of mis-selling by banks, the government is also prodding IRDA to agree on a new mechanism. If the move goes through, banks will turn into brokers for several insurance companies instead of being an agent for one life and one general insurance company. In several cases, where banks have also set up insurance companies, a common complaint is that the branches hawk the in-house insurers' policies. Even if IRDA has come on board the government also needs to get RBI, the banking regulator, to the changes, something that it was reluctant to do earlier.      There were sops for the industry too with the government announcing easier investment norms for the non-AAA rated companies. This means that more bonds issued by even second rung companies would be eligible to get subscription from life insurance companies. Chidambaram said that the change in norms will result create space for an additional 12.5% of the funds with insurance companies to flow into non-AAA-rated securities.      Also, infrastructure sector special purpose vehicles set up by the private sector, which could be entities in the roads or power sector, can now hope to receive funds from an insurer, a benefit that was hitherto available only for arms of public sector companies.      PChidambaram, however, refused to discuss the issue of higher FDI in insurance although he did mention that the regulator had backed an increase in the ceiling from 26% to 49%. A Bill is currently pending in Parliament, which is being opposed by several political parties.