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Coming soon: Mother of all health schemes

Feb 16, 2016

The health ministry plans to roll out a centrally sponsored 'Health Protection Scheme' which will replace several of the existing government-supported health schemes including Rashtriya Swasthya Bima Yojana (RSBY), the government's flagship health insurance plan catering to families below poverty line (BPL).

The proposed scheme will initially provide a minimum cover of Rs 50,000 to around 8 crore families or almost 40 crore people. It will also offer special top-up benefit packages for senior citizens. "The proposal is to converge all centrally-sponsored health insurance schemes and in their place launch a new and superior centrally sponsored health protection scheme," said a senior health ministry official.

According to the proposal, the total budget for the scheme over next five years is pegged at Rs 23,415 crore. The central assistance would be given at a fixed rate of Rs 500 per family per annum for the core scheme. The state contribution is pegged at Rs 300 per family per annum.

To cover 8 crore beneficiary families, the total estimated cost for premium would be Rs 6,400 crore per year and the Centre's contribution is pegged at Rs 4,000 crore a year. Apart from this, the projected premium outgo on account of senior citizens is estimated at around Rs 1,000 crore per year with the Centre contributing Rs 600 crore annually.

The ministry has suggested setting up of a National Health Agency for effective implementation of the scheme as well as linking it with larger healthcare systems such as National Health Mission and other such government programmes. The proposal was discussed at a highlevel meeting on Monday.

Moreover, beneficiaries under the proposed scheme will be listed not merely on the basis of income but also based on deprivation and "identified occupational" categories as per the socio-economic caste census. The move is significant because it will expand the beneficiary base from merely people below poverty line to cover families based on socio-economic strata. Besides, the scheme is also expected to bring in place an efficient implementation mechanism.

The plan comes a year after the RSBY was transferred from the labour ministry to the health ministry with the idea of making it a part of a universal health assurance plan. Though with budget constraints and limited resources the health ministry failed to roll out the universal insurance plan at once, the latest proposal is being looked at as a major step in the direction. Meanwhile, the ministry has also hived off some other schemes like free drugs and diagnostics - which were initially part of the larger scheme - to launch them separately.

The latest proposal of having a single centrally sponsored scheme will also help the government streamline and address problems of overlapping beneficiaries and benefit packages under different schemes. "Such families that are covered under the insurance scheme of other central departments, but not covered under the core scheme, will also be eligible to be covered under the scheme but respective ministries or departments would have to provide funds for such beneficiary families to the ministry of health and family welfare," a detailed note on the proposal said.

Source: The Times of India

Irdai pushes for better governance of insurance firms

Feb 16, 2016

Insurance companies may soon have to overhaul their boards with Insurance Regulatory and Development Authority of India (Irdai) emphasising on governance compliance norms.

The chief executive of a large life insurance company said the new norms are the first step towards motivating insurers to list on stock exchanges. “A stronger board is the maiden step towards listing on the exchanges. While we already have a strong system on the boards in the industry, it is the next step towards strengthening the structure,” he said on request of anonymity.

Irdai said the objective of new guidelines is to ensure the structure, responsibilities and functions of board of directors. It has asked shareholders to elect or nominate directors from various areas of financial and management expertise such as accountancy, law, insurance, pension, banking, securities, economics, with qualifications and experience that is appropriate to the company.

The regulator said the board of directors of an insurer belonging to a larger group structure should understand the material risks and issues that could affect the group entities, with attendant implication on the insurer. Currently, industry experts said, there is no particular difference between board of an insurer which is part of a larger group and others.

The board of directors is also required to have a minimum of three independent directors. As required under Section 149 of the Companies Act, 2013, there shall be at least one woman director on the board of every insurance company. This norm has not yet been followed by all insurers.

However, insurers which have less than three independent directors, have to ensure that they comply with this requirement within one year of the date of notification of these guidelines. As a matter of prudence, not more than one member of a family or a close relative of an independent director as defined in the Companies Act or an associate (partner, director etc) should be on the board of an insurer as independent director.

Irdai has prescribed a minimum lock-in period of five years from the date of certificate of commencement of business of an insurer for the promoters of the insurance company and no transfer of shares of the promoters is permitted within this period without the specific approval of the authority.

“Retired insurance company CEOs or managing directors will not be able to understand the business needs, but also provide expertise for decision making. Hence, boards will now have more number of such people,” said the head of a mid-size private general insurance company.

The board will be responsible for defining standards of business conduct and ethical behaviour for directors and senior management and also defining the standards to be maintained in policyholder servicing and in redressal of grievances of policyholders.

The board will be required to establish appropriate systems to regulate the risk appetite and risk profile of the company. It will also enable identification and measurement of significant risks to which the company is exposed in order to develop an effective risk management system.

Source: Business Standard

Irdai may make electronic insurance mandatory in some cases

Feb 12, 2016

Insurance regulator Irdai today came out with a proposal to make it mandatory for insurers to issue electronic policies if the sum insured exceeds a specified threshold for life, health and general products.

According to the draft proposal, electronic insurance would be mandatory if the sum insured for term life insurance and general insurance policy is Rs 10 lakh or more, and in case of health Rs 5 lakh or above. For policies other than pure term, the threshold is Rs 1 lakh or Rs 10,000 single annual premium.

The draft, on which comments have been sought by Irdai till February 26, also proposes mandatory issuance of electronic policy for motor insurance and individual travel insurance (overseas).

Under the amended Insurance Act, the insurers have the responsibility of issuing electronic policies above the threshold fixed by the Irdai.

In view of the mandate under the Act, the regulator has proposed Irdai's (Issuance of electronic insurance policy) Regulations, 2016 mandating electronic insurance policies beyond stipulated sum insured or premium limit.

"Every insurer shall issue in electronic form insurance policies that fulfil the criteria ... In terms of sum assured or premium. Electronic policies may be issued by the insurers either directly to the policyholders or through the registered Insurance Repositories," the draft said.

It further said that policies issued in electronic form should be deemed compliant only with digital signature.

"Only such policies shall qualify as e-insurance policies," Irdai has proposed.

The policyholders who wish to avail the facility of electronic insurance policy could do so by registering their choice with the insurer. There would be charges for the conversion.

Regarding discount on electronic insurance policies, the draft said an insurer could offer discount in the premium rates "in accordance with the rates filed under the Product Approval guidelines".

Creation of an e-proposal form similar to the physical proposal form has also been proposed.

Further, every insurer would mandatorily issue e-insurance policies in disaster prone and vulnerable areas.

Based on the information provided in the proposal form, the insurers may either accept or reject the proposal.

In case the proposal is rejected the insurers would have to communicate that to the prospect through e-mail.

Source: Business Standard

Budget 2016: Un-tax my insurance, requests the average insurance buyer

Feb 12, 2016

“Unbreak my heart”, crooned Toni Braxton in a clever play on words. Unfortunately there is nothing too clever about the tax regime on insurance in India. World over, insurance and pension funds are the long term drivers of the economy, bringing in capital for the core sectors of the economy. Insurance and pension funds are long term in nature, and these industries promote thrift and sound financial ideals in a population.

Consider the following two facts:

1. Today India needs massive and consistent funds in the infrastructure space to promote growth and reduce poverty. While banks play an important role in extending credit lines, it is insurance and pension funds that fund government initiatives and invest in long tenure instruments, providing a powerful source for government outlays.

2. India has no social safety net. Most of the population is left to the vagaries of employment and the weather. Rising health costs have bankrupted homes and loss of loved ones has destroyed families. The insurance and pension industries attempt to fill this gap, a gap appreciated by the prime minister himself in the recently rolled out Bima Yojanas.

It therefore follows that the government must be doing everything in its capacity to encourage this inflow into insurance and pension funds. Sadly, this does not appear to be true. While on the one hand the government encourages investment in the insurance sector, on the other hand it taxes the products so heavily as to make the business difficult to do. Let us consider the issues one by one.

Service Tax: By its very definition this tax must be applied if a service is offered. To apply service tax on annuity or pension premiums and protection premiums (term life, health and so on), is a travesty of the tax. The cover provided is a product: why should that be taxed, pushing up the cost of ownership by almost 15 percentage points? One can understand tax being applied, if a service is sought on the policy, like an address change or the like and the company charges a fee for effecting the change. Pushing up the cost of ownership of a protection product, especially in a country that has virtually no state-sponsored safety net is illogical. By the same logic, one should be paying service tax on the entire amount invested in a mutual fund rather than (as is currently done) on the management and advisory fees!

Taxing Policy Returns on Maturity: For long, insurance policy maturity returns were not taxed. A few years back, these were bought into the tax net for short duration policies. The ostensible reason was to prevent money laundering – although it defeats me as to why a smart person would launder money through an insurance policy. Insurance policy returns are lesser that what a savings bank account will offer you, primarily because most (up to 80%) of the premiums are invested in government securities offering guaranteed but fairly low returns. On the one hand the returns to the policyholder are low and he has already indirectly contributed to the economy through his premiums being invested. To add insult to injury, he is taxed on the meagre outcomes as well! Should we not at least consider bringing it on par with long term mutual funds (which have no taxes) or bonds, where after three years there are no taxes?

Income Tax on Annuity and Pension Payouts: To me this represents the abdication of reason. Differential tax treatment on pension payouts is a critical need both to encourage long term savings and to provide an inflation-protected means of living to senior citizens. If revenue is the sole consideration, exemptions up to specified amounts must be provided. We can introduce an age cut-off, say 60 years by which most Indians retire, before which proceeds will be taxable. After the age of 60, proceeds should be tax exempt. The benefits to the government in terms of long term funds collected and to the citizenry in terms of alleviation of post retirement penury are immense. Some wisdom in this aspect will actually increase investments providing long term investible funds for the nation and also provide a much needed fillip to the insurance industry that is currently suffering from a prolonged bout of distress in terms of business performance.

Rationality in taxation can encourage behaviour changes and even lead to an increase in savings rates. Lack of vision and the inability to go beyond immediate revenue considerations is almost always a dangerous combination. A combination of service tax and income tax is a double whammy that will have long term repercussions on an industry that is the life blood of long term finance needs.


Irdai recommends waiver of service tax on insurance premium

Feb 10, 2016

Insurance sector regulator Irdai has recommended waiver of service tax on the premium amount being paid by policyholders in order to have a level playing field with other financial products, a top official said today. It has also suggested extension of tax-break on pension products of life insurance companies on lines of that introduced by the Centre for additional investment of Rs 50,000 under National Pension System (NPS) last year.

"Every year, government asks us to submit our recommendations before the Budget. So this year too we have submitted our recommendations before the government. "We want that there should not be any service tax imposed on the premium investors pay for the insurance policies," Irdai Member (Life) Nilesh Sathe told reporters here on the sidelines of an event organised by Association of Insurance Claims Management (AiCM).

"There is a service tax on maturity where along with bonus, sum assured is also taxed. This is in contrast with the banking system where only interest is taxed, not the principal amount," he said.

Speaking on Irdai's suggestion for extension of tax-break on pension products of life insurers, he said, "We also want that like NPS, for which the government has permitted tax-break on additional amount of Rs 50,000 investment, the same tax-break should be extended to the insurance sector too."

"Life insurers also have pension plans and if they get the tax-break facility on the lines of NPS, then there would be level playing field to the sector," he added.

In Budget 2015-16, the government had announced income tax relief on additional investment of Rs 50,000 as contribution to NPS under the Section 80CCD.


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