Concerns Over Insurance Policies and Accessibility in India

The Standing Committee on Finance presented a report denoting critical issues in India’s insurance sector. The report raised alarms over government policies, particularly the Goods and Services Tax (GST) and Tax Deducted at Source (TDS) on insurance products. These policies are viewed as barriers to accessing essential insurance coverage, especially amidst increasing natural disasters and health crises.

High GST on Insurance Products

The committee noted that India imposes an 18% GST on vital insurance products like health and term insurance. This high tax makes premiums unaffordable for many people. In contrast, regions such as the European Union and Canada exempt insurance products from VAT or GST. The Insurance Regulatory and Development Authority of India (IRDAI) recommended similar exemptions to the Ministry of Finance. However, the lack of action from the government has raised concerns about accessibility.

Disparities Between Private and Public Insurers

The committee brought into light regulatory imbalances favouring private insurance companies. Public insurers must deduct 2% TDS on commissions and claims, a requirement not imposed on private firms. This disparity raises questions about fair competition in the insurance market. The committee urged the Ministry of Finance to address these issues and ensure equitable treatment for both public and private insurers.

Impact of Government Schemes on Insurers

Public sector companies are mandated to implement government schemes like Ayushman Bharat and Pradhan Mantri Fasal Bima Yojana. In contrast, private firms are not held to the same standards. The Prime Minister’s Crop Insurance Scheme has led to losses for public insurers while benefiting private companies. The committee stressed the need for accountability among private insurers participating in government initiatives.

Financial Health of Public Sector Insurers

Public insurance companies have faced substantial financial losses, amounting to around Rs 26,000 crore between 2016-17 and 2020-21. The COVID-19 pandemic worsened their financial situation. The committee called for a strategic roadmap with specific timelines to enhance the financial health of these companies. It suggested aggressive measures if performance does not improve.

Need for Disaster Insurance

India ranks third globally in natural disaster frequency, with floods being the most damaging. Many homes lack resilience against such disasters. The committee recommended insurance for properties in vulnerable areas, drawing inspiration from Florida’s specialised disaster insurance program. The government is considering making home insurance mandatory in high-risk regions.

Addressing the ‘Missing Middle’

A population segment, termed the missing middle, does not qualify for government insurance schemes but cannot afford private insurance. This demographic faces high medical expenses. The committee reiterated NITI Aayog’s recommendation to extend insurance coverage to this group. Affordable premiums and cashless settlements are crucial to encouraging health insurance uptake among them.

Questions for UPSC:

1. Analyse the impact of GST on the affordability of essential insurance products in India.
2. Critically discuss the regulatory disparities between public and private insurance companies in India.
3. Examine the challenges faced by public sector insurance companies in India and the measures needed for improvement.
4. Estimate the significance of providing disaster insurance in enhancing resilience among vulnerable populations in India.

Answer Hints:

1. Analyse the impact of GST on the affordability of essential insurance products in India.

1. India imposes an 18% GST on essential insurance products like health and term insurance, raising premium costs.
2. This high tax rate makes insurance unaffordable for many, limiting access to necessary coverage.
3. In contrast, developed regions like the EU and Canada exempt insurance from VAT/GST, making it more accessible.
4. The IRDAI has recommended similar exemptions to improve affordability, but government inaction persists.
5. High premiums discourage individuals from obtaining insurance, especially in the context of rising natural disasters and health crises.

2. Critically discuss the regulatory disparities between public and private insurance companies in India.

1. Public insurers are required to deduct 2% TDS on commissions and claims, while private insurers face no such obligation.
2. This regulatory imbalance creates an uneven playing field, disadvantaging public sector companies.
3. The Standing Committee has called for a review to address these disparities and ensure fair competition.
4. Private companies benefit from government schemes without the same accountability as public firms.
5. Such disparities may lead to a lack of trust in the insurance market and hinder public insurers’ viability.

3. Examine the challenges faced by public sector insurance companies in India and the measures needed for improvement.

1. Public sector insurers have incurred financial losses, approximately Rs 26,000 crore from 2016-21.
2. The COVID-19 pandemic exacerbated these financial difficulties, straining their resources further.
3. The committee recommends a strategic roadmap with timelines for performance improvement in public insurers.
4. There should be aggressive measures if the financial health does not improve within the set timelines.
5. Infusions of capital from the government should be accompanied by clear accountability and performance metrics.

4. Estimate the significance of providing disaster insurance in enhancing resilience among vulnerable populations in India.

1. India ranks third globally in natural disaster frequency, making disaster insurance crucial for vulnerable populations.
2. Many homes lack resilience against disasters, leading to economic losses and displacement.
3. Insurance can provide financial security and aid recovery efforts in disaster-prone areas.
4. The committee suggests creating specialized insurance programs for high-risk regions, inspired by successful models like Florida’s.
5. Mandatory home insurance in vulnerable areas could enhance community resilience and reduce poverty risks.