Insurance and Pensions

India's insurance market has enjoyed tremendous growth- in terms of coverage and in the types of products available- since the market was partially deregulated in 1999. However, important reforms still remain, particularly in terms of foreign participation in the market. Foreign investment in insurance is limited to 26% FDI, and is largely barred altogether in the pension fund management business. The Government of India has been working on setting up new regulatory regimes for related products including mortgage guarantees and title indemnity.

Like other forms of financial services, a healthy insurance and pension market can contribute mightily to the development of physical infrastructure. The long-term investing nature of insurance and pension funds is a good fit for infrastructure projects which typically have long, steady revenue cycles.

The USIBC Executive Committee on Insurance and Pensions is advocating for several critical policy reforms, including:

• Pass the Comprehensive Insurance Act: The primary focus in the first six months of the new Government will be passage of the Comprehensive Insurance Act (the Act). USIBC will re-engage with CII, FICCI, and other key Indian stakeholders to ensure that passage of the Act is a top priority for the Indian private sector.

USIBC will work with the American Council of Life Insurers to reconstitute the ad hoc global coalition of Insurance Associations to develop and implement a broad-front advocacy campaign. Based on strategy discussions with member companies and partner associations, we will intensify direct engagement with the new government and Parliament – particularly the new Chairman and key members of the Standing Committee on Finance – to push for quick passage of the Act.

Finally, this strategy will be closely coordinated with the U.S. Government to ensure broad advocacy support by the Embassy and Departments of Treasury and Commerce, and the U.S. Trade Representatives Office.

• Engage the Reserve Bank of India (RBI) to increase the current FDI cap on mortgage guarantees.

• Engage the RBI to address existing policies that inhibit foreign direct investment (e.g. repeal of RBI Circular 20).

• Initiate formal dialogue with Dhanendra Kumar, Chairman of the Competition Commission, to develop more competitive policies in the Insurance and Pensions sector.

• Continue advocacy and support for ongoing Bilateral Investment Treaty negotiations through the USIBC Trade Policy Initiative.

Tax-Related Issues Governed by Central Government

• Extend service tax exemption to insurance agents. Service providers whose annual receipts do not exceed $20,000 are exempt from service tax. However this is not extended to agents who are providers of "insurance auxiliary services" to insurers. The extension of the service tax exemption to additional agents will benefit all the agents, as they will share the burden of the service tax levy more fairly.

• Extend tax loss carry forward period. India allows an 8-year tax loss carry forward period (the period of years over which a company can write off a single year's loss to smooth returns). This is well below other Asian markets, which typically allow 10+ years for loss carry forward, with some markets allowing indefinite periods.

• Level the tax rates for unit-linked insurance products and similar products. In 2008 India began to levy service tax on the entire range of charges in a unit-linked life insurance policy such as the fund management charge, policy administration charge, the policy allocation charge, etc. The policy allocation charge specifically is levied by insurers to recover initial acquisition cost of the policy and is not a charge for the management of investment under the unit-linked plans. For mutual funds, the entry and exit load charges (akin to the policy allocation charge in ULIP) are meant to meet initial issue expenses and other specified expenses incurred by the mutual fund, and are not subject to service tax; only the "investment and advisory fee" charged by the asset management company to the mutual fund is covered by service tax.

Committee Chair: Richard Rossow, New York Life