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GENERAL INDUSTRY BACKGROUND
The Indian insurance industry, valued at ~US$ 41 billion, is considered the fifth largest life insurance market, and is growing at a rapid pace of 32-34% annually, according to the Life Insurance Council.1 In India, the insurance sector operates under the aegis of the Ministry of Finance and is regulated by the Insurance Regulatory and Development Authority ("IRDA"). The insurance sector plays a critical role in country's economic development. It acts as a mobilizer of savings, a financial intermediary, a promoter of investment activities, a stabilizer of financial markets and a risk manager. The insurance industry in India can be mainly classified into (i) Life Insurance & (ii) Non-life Insurance. Indian insurance sector is open to private participation from foreign players as well under the Foreign Direct Investment ("FDI") regime promoted by the Department of Industrial Policy and Promotion. Further, India's insurance industry is projected to reach USD 350-400 billion in terms of premium income by 2020 making it among the top 3 life insurance markets and amongst the top 15 general insurance markets.2 In India, at present, there are nearly 50 public and private sector life/non-life insurers.3
IMPORTANT TRENDS IN THE INDUSTRY
- In 2011, FDI in the Indian insurance sector was USD 1.36 bn, of which life insurance comprised USD 1.1 bn and general insurance comprised USD 0.2 bn..4
- Life and general insurance companies of India have a total investment of USD 6 bn as of March 2011.5
- The Mckinsey report on the outlook for the insurance sector in 2012 predicts an exponential growth for the Indian insurance industry in 2012 due to such contributing factors as increasing household incomes, higher premiums (as a percentage of the GDP) and a total market premium growth estimated to be close to $100 billion.6
- The Indian insurance sector is on the verge of a major evolution with the Union Cabinet approving some of the key amendments proposed by the Insurance Laws (Amendment), Bill 2008 (proposing to amend the Insurance Act, 1938) including the increase in FDI limit from 26% to 49%.
- In 2011, IRDA issued regulations7 permitting issue of capital by the life insurance companies in India.
- IRDA also issued draft IPO norms for general insurance companies in 2012.
MAJOR PLAYERS IN INDIA
Leading Indian companies
- Life Insurance
- Life Insurance Corporation of India, Birla Sun Life Insurance Co. Ltd, ICICI Prudential Life Insurance Co. Ltd, Max Life Insurance Co. Ltd, Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd., ING Vysya Life Insurance Company Ltd., HDFC Standard Life Insurance Co. Ltd.8
- Non-Life Insurance
- Bajaj Allianz General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., National Insurance Co. Ltd., The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd., United India Insurance Co. Ltd., Tata AIG General Insurance Co. Ltd., Export Credit Guarantee Corporation of India Ltd., Reliance General Insurance Co. Ltd., SBI General Insurance Company Limited, Religare Health Insurance Company Limited9
Leading MNC Companies in India
- IFFCO Tokio General Insurance Co. Ltd., Edelweiss Tokio Life Insurance Co. Ltd., Future Generali India Insurance Company Limited, Universal Sompo General Insurance Co. Ltd., Bharti AXA General Insurance Company Limited, Max Bupa Health Insurance Company Ltd.
Important industry associations
- Insurance Association of India, Insurance Corporation Employees Union (India) (ICEU), Insurance Brokers Association of India (IBAI), Actuarial Society of India (ASI), Indian Institute of Insurance Surveyors and Loss Assessors (IIISLA), National Insurance Company Officers' Association (NICOA), Eastern Zone Insurance Employees' Association (EZIEA), General Insurance Employees' Union.
IMPORTANT LAWS AFFECTING THE INDUSTRY
Insurance Act, 1938
- The basic law relating to insurance which consolidates the law relating to business of insurance.
- Prescribes the procedures and requirements to comply with by insurance companies while doing the business of insurance and re-insurance.
- Prescribes provisions relating to insurance associations, councils and committees.
- Prescribes provisions relating to licensing and payment of commission to insurance agents.
Insurance Regulatory and Development Authority (IRDA) Act, 1999 and Rules & Regulations thereunder
- Appointment of the insurance sector regulator – "IRDA" to set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates.
- Provisions relating to protection of the interest of and secure fair treatment to policyholders.
- Provisions for taking action where such standards are inadequate or ineffectively enforced.
- Code of conduct for insurance intermediaries.
The Motor Vehicles Act, 1988
- Prescribes provisions relating to third party insurances to be obtained by the owners of motor vehicles.
- Prescribes the duties of the insurers towards third parties in cases of accidents.
The Insurance Rules, 1939
- Provides for licensing of various intermediaries and appointment of various committees.
- Provisions relating to compliances to be observed by insurance companies while operating insurance business.
The Redressal of Public Grievances Rules, 1998
- Provides for constitution of grievance redressal machinery for the redressal of grievances of policyholders against the insurance companies.
- States the procedure for the redressal of grievances.
The General Insurance Business (Nationalisation) Act, 1972
- Nationalized the general insurance business in India.
- 107 insurers were amalgamated and grouped into four companies which were owned by the Government.
Foreign Exchange Management (Insurance) Regulations, 2000
- Permits a person resident in India to take or continue to hold a life insurance policy issued by an insurer outside India, provided that, the policy is held, under a specific or general permission of the RBI.
- Permit a person resident in India to continue to hold any life insurance policy by an insurer outside India when such person was resident outside India, without any permission of the RBI.
TAX LAWS AFFECTING INSURANCE INDUSTRY
Income Tax Act, 1961
- It is tax on income imposed by Central Government.
- Residents in India are taxed on their worldwide income.
- Non- residents are taxed on Indian source of income.
- The Indian tax rates applicable to non-residents could be up to 40% (excluding applicable surcharge).
- If the tax payable by any company, including a foreign company taxable in India, is less than 18.5% of its book profits, it will be required to pay Minimum Alternate Tax.
- Interest received by a non-resident from India on foreign currency denominated loans may be taxable.
- Payments towards royalty and fees for technical services are taxable.
- u/s. 10(10D) of the Income Tax Act, 1961 any sum received under a life insurance policy, including the sum allocated by way of bonus on such policies is exempted from income tax. Therefore any claims or maturity proceeds received by the resident policy holder will not be taxable as income.
- Section 80C of the Act provides for deduction in respect of payments for life insurance premium in computing the total income of an individual or a Hindu Undivided Family. The amount of deduction is subject to the maximum of Rupees one lakh being the aggregate of sums referred to in sub-section (2) of Section 80C.
- Section 88 of the Act provides for a rebate on life insurance premium paid on the policy to the policyholder.
- Under the current service tax regime, service tax leviable on service provided by an insurance agent is not to be paid by the insurance agent himself but by the insurance company.
- Life Insurance premium is taxable as per the provisions of Service Tax.
Insurance Regulatory and Development Authority (IRDA)
- Established under the Insurance Regulatory and Development Authority Act, 1999.
- Responsible for- regulating the insurance companies and insurance intermediaries operating in India by prescribing code of conduct; protection of the interest of and secure fair treatment to policyholders; set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates.
- Arm of Ministry of Finance.
The Indian Insurance Industry has grown steadily in the past decade. Insurance companies, owing to high competition in the relevant market, are focusing on higher satisfaction of the policyholders. This has improved the quality of service of the insurers. The Indian insurance industry has also been able to attract high FDI. However, there are still some serious issues which plague this sector. One of them is the low penetration of the insurance services in India. For life insurance, the penetration is 4.4% and for non-life business, it is a mere 0.76%11. Also, the insurance companies in India are facing the problem of the lack of capital which is affecting their growth opportunities. An attempt has been made by the Government to address these issues by way of the Insurance Laws (Amendment), Bill 2008 (proposing to amend the Insurance Act, 1938), which proposes to raise the foreign equity cap on Indian insurance companies, by way of FDI, from 26% to 49%. This shall ensure greater capital flow in the Indian insurance sector.
2 "Employment Outlook 2012 - India", Kelly Services Inc.; http://bit.ly/XdpJoM, http://www.cedar-consulting.com/pdf/Cedar_USIBC_%20Report.pdf