Financial Daily from THE HINDU group of publications
Sunday, Mar 03, 2002
Financial Daily from THE HINDU group of publications Sunday, Mar 03, 2002 |
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Investment World
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Insurance Insurance products more pricey Sanjiv Shankaran
Pru-ICICI selling dreams: With the Budget going down heavily on tax benefits and interest rates, private insurance players will now find it difficult to capitalise on people's dreams.
MR YASHWANT Sinha's tax proposals have dealt a mortal blow to the private life insurance companies. It is early days yet for private insurers, but they face an uphill task in a country where tax benefits and investment returns count when people decide to buy an insurance policy. Tax benefits make a significant difference to the returns on an insurance policy. A tax rebate reduces the outflow of money on an insurance product, thereby boosting returns that might otherwise seem meagre.To illustrate, ICICI Prudential Life Insurance has underwritten over Rs 1,000 crore of cover since its inception. Among the variety of policies it offers, the endowment policy, with a strong savings orientation, has been most popular. Practically all the new life insurance companies have started operations with money-back and endowment policies, indicating that an insurance product in India is seen largely as a savings instrument. A few private insurers have suggested that their potential is rich because Indians are under-insured. Their focus appears to be an attempt to educate people about the inadequate insurance in their portfolio, and simultaneously offer products to meet their demand. Max New York Life, that has largely sold whole life insurance products, is an example of a company that believes inadequate insurance cover holds the key to success. Following the decision to scale down tax rebates on insurance policies, private insurers will have their task cut out in trying to capitalise on the inadequate level of insurance. What of Life Insurance Corporation? It is comfortably placed. Of all State-owned monopolies that had to lose their hallowed status, LIC is the soundest. Distribution appears to hold the key to success in the life insurance industry, and LIC, with its army of agents, generates a huge incremental business. However, the decision to scale down tax rebates is likely to impact the company too. For instance, a recent product introduced by LIC, a combination of endowment and wholelife policy, mainly to fill unmet demand, reinforces the idea that returns on investment are critical to insurance decisions. Therefore, the Budget proposals are likely to affect LIC too.One area that must be a huge let down for the industry is the Finance Minister's decision to leave existing tax breaks for pension policies untouched. This is where the industry seemed keen on bigger tax incentives. While the Budget has been silent on the issue this year, it appears to be just a matter of time before incentives are provided for direct savings into pension funds. If only to generate resources for infrastructure and related investment, a broke state is likely to offer incentives for pension funds, sooner than later.
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