The Hindu Business Line : Insurers see `life' beyond Fringe Benefit Tax

LIC would give its 10,000 corporate clients, who are already purchasing the conventional group gratuity product, the choice to switch to the unit-linked version.

Mumbai , Sept. 25

THERE may be life after fringe benefit tax (FBT) after all for the group business of insurance companies. True, FBT has come down heavily on the group superannuation plans of insurance companies. But some of these companies are looking to expand their group business portfolio by introducing unit-linked group insurance plans and also focus on other lines of business.

LIC, the largest player in the group insurance business, hopes to garner 23 per cent of its total new business premium in 2005-06 from this portfolio against 17 per cent last year. The company has set itself a target of Rs 4,000 crore for the fiscal, up by almost 10 per cent from Rs 3,666 crore last year.

The company will soon be introducing a unit-linked product for group gratuity, a plan that is already being offered by many private players.

Mr R. Venugopal, Executive Director (Pension and Group Schemes), LIC, said that the corporation would give its 10,000 corporate clients, who are already purchasing the conventional group gratuity product, the choice to switch to the unit-linked version. The product has been filed with the IRDA for approval.

In the case of the unit-linked product, up to 60 per cent of the investible amount is deployed in shares and the rest in Government securities, bonds, and money market instruments, as opposed to conventional group gratuity schemes that operate on the principle of pooled fund. With the levy of FBT on group superannuation business, life insurance companies are looking to increase their group gratuity business, which is a statutory liability for companies.

Birla Sun Life holds a superannuation fund of Rs 350 crore, one of the largest among private insurers. The company, which derives 80 per cent of its business from group superannuation, is now doing a rethink.

Ms Anjana Grewal, Vice-President (Marketing), said that many of the company's group superannuation deals are held up. "We are formulating a new strategy."

In the first quarter of 2005, the company's group business has fallen to Rs 4 crore against Rs 22 crore in the corresponding previous period. ICICI Prudential, which has 6.6 per cent of the market share in terms of group business, offers only unit-linked group gratuity and superannuation schemes, which together account for the majority of its business. The company has registered 115 per cent growth in the first quarter in the group segment compared to the year-ago period.

Mr Tarun Chugh, Head of Group Solutions and Alliance, ICICI Prudential, said: "FBT does adversely impact the long-term savings of employees through superannuation schemes. However, we still believe that there is scope to attract the funds of self-managed trusts and continue to focus on both the segments of gratuity and superannuation."

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