IRDA, Finance ministry deliberate on ways to spur insurance policy approvals

 Finance Minister P Chidambaram on Wednesday held a meeting with Insurance Regulatory and Development Authority (IRDA) chairman J Hari Narayan to resolve issues in the insurance sector and spur insurance penetration. 

“The meeting discussed how to increase insurance penetration, how insurance companies can do more business, how better products can be introduced at lower premium, and how more investment can flow to infrastructure sector,” said financial services secretary DK Mittal. 

Mittal said there will be another round of meeting to discuss investment and taxation issues. The government is looking to popularise insurance and mutual funds to wean investors away from gold and raise long-term funds for investors. 

A government official familiar with the deliberations told ET that insurance regulator has agreed to develop a mechanism for faster approval of insurance policies. 

“But the ‘use and file’ process will only be applicable for standard products and the insurers will also have to explain the product mechanism before hand,” he said. 

At present, insurers can introduce products only after obtaining the sector regulator’s approval. 

Ways to relax investment norms to channelise more funds into the infrastructure sector, bancassurance and process of approval for opening offices in Tier-II and below towns were among the issues discussed. 

Exemption of service tax on insurance policies, especially annuities, will be among the key issues that will be discussed on Thursday, another official said. The policies currently attract a service tax of 3 per cent. 

Finance ministry will also discuss with IRDA a proposal to allow insurance companies to invest up to 50 per cent of their debt investments in AA-rated paper, as opposed to the current stipulation that they invest 75 per cent of their debt corpus in AAA-rated bonds. At present, 50 per cent of the total investible funds of insurance companies have to be parked in government funds. It has now been proposed that this allocation be lowered to 40 per cent. 

Finance ministry officials and IRDA are also expected to deliberate dilution in the 18 per cent minimum alternate tax, or MAT, applicable to non-life insurers. 

According to estimates, the investment corpus with life insurance companies is about Rs 13 lakh crore. Of this, only 20 per cent currently goes towards the infrastructure sector. India needs about a trillion-dollar investment in the infra space during the 12th Five-Year Plan (2012-17).

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