The insurance sector is eagerly anticipating the Union Budget 2025, with expectations of significant amendments to the Insurance Act and key tax exemptions aimed at boosting health and protection insurance adoption. Industry leaders believe these reforms, combined with adjustments to the new tax regime, will improve affordability and drive greater insurance penetration across the country.
Expected Amendments to the Insurance Act
Key changes anticipated in the Insurance Act include:
- Opening of the Agency Channel: This will allow insurers greater flexibility in their operations.
- Revised Capital Requirements: The industry is seeking updates to minimum capital requirements for companies.
- Increased FDI Limit: Insurers are hopeful the foreign direct investment (FDI) limit will rise from 74% to 100%, encouraging foreign players to invest in the Indian market.
"The government might table the Insurance Laws (Amendment) Bill, 2024, during the Budget session, bringing transformative changes to support the sector's growth and align with financial inclusion goals," said the MD and CEO of Edelweiss Life Insurance.
Tax Exemptions and Affordability Boost
Industry leaders are also advocating for tax reforms to make insurance more affordable:
- A separate deduction section for insurance premiums covering health, personal accident, home, and life insurance, apart from Sections 80C and 80D.
- Enhanced limits under Section 80D in the old tax regime to Rs 50,000 for all taxpayers and Rs 1 lakh for senior citizens.
- Inclusion of Section 80D deductions in the new tax regime to promote health insurance penetration.
- Revision of Rule 6E to calculate unexpired premium reserves using the 1/365 method, as allowed by the Insurance Regulatory and Development Authority of India (IRDAI).
"This deduction will make insurance products more attractive under the new tax regime, encouraging more individuals to secure their future,” said the president of the Insurance Brokers Association of India.
Focus on Public Sector Insurers and Technology
With solvency challenges faced by state-owned general insurers, the industry is pushing for capital infusion to strengthen their financial health.
"Budgetary allocations to recapitalize public sector general insurers will address their weak solvency position, ensuring stability in the segment,” said the vice-president and sector head of financial sector ratings at ICRA.
The sector also hopes for higher allocations in healthcare, education, and skill development to drive innovation and digital readiness, particularly for insurtech products.
"The Budget should focus on building trust, reducing adoption barriers, and increasing competition in underinsured markets. Affordable and accessible digital insurance solutions will be the key to greater penetration," noted the MD and CEO of Universal Sompo General Insurance.
Looking Ahead
As India's insurance penetration remains low, the Union Budget 2025 is expected to introduce measures that incentivize lower-ticket-size policies and strengthen public health infrastructure. These reforms, combined with regulatory changes and strategic investments, could pave the way for robust growth in the insurance sector while supporting the government's vision for financial inclusion and economic stability.
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