![](\"https:\/\/im.rediff.com\/money\/2022\/may\/20mediclaim.jpg?w=670&h=900\")
<\/p>\nHigh-value insurance policies experienced muted growth in the first six months of the current financial year after the Centre decided to tax such products in this year’s Budget.<\/p>\n
<\/p>\n
Simultaneously, there has been a marked improvement in the growth of policies with premiums of ‘less than Rs 5 lakh’, mainly originating from smaller cities.<\/p>\n
During this year’s Budget, Finance Minister Nirmala Sitharaman proposed that insurance policies (excluding unit linked insurance plans or ULIPs) with an aggregate premium exceeding Rs 5 lakh, and the maturity amount, would not be exempt from tax.<\/p>\n
This rule came into effect on April 1, 2023.<\/p>\n
Speaking at the after-earnings analyst meeting, Niraj Shah, executive director and chief financial officer (CFO) of HDFC Life Insurance, said, “The business exceeding Rs 5 lakh has declined, but it still remains a meaningful contributor.”<\/p>\n
He added that this segment constitutes nearly 6 per cent of HDFC Life’s business, experiencing negative growth.<\/p>\n
Conversely, the ‘less than Rs 5 lakh policies’, accounting for 90 per cent of the company’s business, has seen an 18 per cent growth.<\/p>\n
The growth in this segment has neutralised the impact on their overall ticket size.<\/p>\n
Sharing a similar experience, Amrit Singh, CFO of Max Life Insurance, noted that the ‘less than Rs 5 lakh’ segment has grown at 21 per cent, whereas the more than Rs 5 lakh segment has also been growing but has moderated compared to the previous year.<\/p>\n
Some companies observed the possibility of a shift from these policies to ULIP plans due to the tax exemption granted to the category.<\/p>\n
According to the management of ICICI Prudential Life Insurance, the non-linked annualised premium equivalent (APE) mix declined from 28.8 per cent in the second quarter of 2022-23 to 25.8 per cent in the same period in 2023-24 (FY24).<\/p>\n
On the other hand, the linked APE mix increased to 44.9 per cent in the second quarter (Q2) of FY24 from 41.1 per cent in the year-ago period.<\/p>\n
This shift is attributed to a possible migration to linked products.<\/p>\n
Non-linked products are insurance plans not linked to the stock market, and therefore, their returns are not based on market performance.<\/p>\n
“One reason for the shift in the mix is a significant proportion of more than Rs 5 lakh ticket size, non-par business shifting to linked and part guarantee products, and this trend has been increasing month-on-month in Q2FY24,” the management stated during their after-earnings analyst meeting.<\/p>\n
Furthermore, Dhiren Salian, CFO of ICICI Prudential Life Insurance, mentioned that “one level of migration was towards unit-linked plans.<\/p>\n
“The second migration is towards participating plans”.<\/p>\n
As a result of the tax imposition, insurers are witnessing a reduction in business from Tier-I cities due to the concentration of policies exceeding Rs 5 lakh in this region.<\/p>\n
Meanwhile, Tier-II and Tier-III cities have been registering faster growth.<\/p>\n
“We have seen Tier-II and Tier-III markets grow much faster for us, almost double what we have seen at the company level.<\/p>\n
“Of course, Tier-I has had an impact this year because the greater than Rs 5 lakh ticket size normally concentrates in Tier-I,” said Suresh Badami, deputy managing director (MD) of HDFC Life Insurance.<\/p>\n
Speaking on the impact of the tax reform, Siddhartha Mohanty, chairman of Life Insurance Corporation of India, mentioned that the life insurer had a very minimal impact on taxation.<\/p>\n
“It will be very less, I think less than 2-3 per cent, not much on the premium side, and policy side it was something like 0.14 per cent.”<\/p>\n
The life industry remains watchful of the growth numbers in the second half of the financial year.<\/p>\n
“With the final phase of the financial year approaching, it will be an interesting time to see how the industry numbers pan out.<\/p>\n
“I am confident that our strategies will enable us to tide through the phase,” noted Tarun Chugh, MD and chief executive officer of Bajaj Allianz Life Insurance.<\/p>\n