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Home / Insuremagic Exclusives

Interview of Mr D M Satwalekar, MD and CEO, HDFC Standard Life Insurance

HDFC, an established name in housing finance has recently ventured into life insurance business in partnership with Standard Life Insurance of the UK. HDFC Standard Life Insurance is the first private company to have received its licence from the insurance regulator. Its products are already out and the company believes a level playing field for one and all would be the ideal situation as regards taxes.

What, do you wish, the forthcoming budget would bring for the insurance sector?

I am confident the Finance Minister will keep his word and ensure a level playing field for all insurance companies as far as tax benefits for the policyholders are concerned.

Given the need to address the issue of old age support, I hope necessary amendments are made to Sec 80CCC(1) of the IT Act, to make pension schemes of the new insurance companies also eligible for tax benefits. As new products can be introduced only after they have been approved by the Insurance Regulatory Development Authority (IRDA), under its ‘file and use’ procedure, there should be no requirement for each new product to be additionally approved by the Income Tax department, as has been recently reported in the press.

Given the need for long-term savings to be encouraged to finance, inter alia, infrastructure, there is a strong case for the limit under Sec. 88 to be enhanced by Rs 20,000, which is specifically earmarked for pension premiums. Sec 88 tax incentives should be restricted to encouraging long term savings and not be available for short term instruments.

A large number of employers, including many public sector banks have offered Voluntary Retirement Scheme (VRS) to their employees. As a result those opting for VRS will have a substantial sum in their hands. An additional one-time incentive under Sec 88 should be provided to them They can invest the money for pension accumulation upto Rs 200,000 , thus also building up long term savings in the economy.

Besides I also hope the Finance Minister accepts the recommendations of the Eradi committee regarding taxation of insurance companies.

Do you think the tax exemption on policies would continue?

Yes, I am confident that the tax exemption on premiums paid to maintain policies would continue.

What kind of insurance benefits will the forthcoming budget provide for the rural sector?

I am not sure whether there would be any specific provisions in the budget regarding benefits for rural insurance. Even if there were, these would have to be indirect benefits to encourage insurance companies to extend their reach to the rural areas. I am doubtful if there will be any incentives given , as the Insurance Regulatory Development Authority (IRDA) has already stipulated a minimum volume of business in rural areas that all insurance companies will have to undertake.

What should the policyholders look forward to in the coming budget?

The amendments in the Income Tax Act would be such as to bring about parity between the existing player and the new ones as regards gratuity and pension benefits. The policyholders can look forward to an additional sub-limit would be created under Sec. 88 for pension premiums.

What should the insurance agents look forward to in the coming budget?

Increased tax benefits for individuals would make it more attractive for their clients to buy insurance. But leaving aside the tax benefits for the moment, I think agents will be excited as they will now have a range of products to offer their clients and can also look forward to better training facilities and enhanced customer service standards.

Policyholders will now look forward to prompt service and cost effective insurance covers among others in the changed scenario. How do you as an insurer plan to provide these?

Our company is committed to the highest levels of customer service. We have achieved it through continuous training at every level, for employees as also our consultants who sell the policies. Technology will be the driver for success in the financial services industry, and will be the cornerstone of our company’s strategy in delivering the highest levels of customer service.

Our company has two sets of customers, the end customer who buys the policies and the consultant who sells them on our behalf. Our website www.hdfcinsurance.com will service both. It will provide b2b services to the consultant and b2c services to the end customer. The use of appropriate technology and organizational structures for efficient delivery of services will lead to the development of cost effective products.

What kind of tax structure for the insurance sector, policyholders do you expect from the Budget?

I hope that the valuation surplus method is adopted as the basic method for determination of taxable income of insurance companies. It is important that shareholder’s profits are assessed separately and taxed at the applicable rates. As for the policyholders share of the surplus, an argument can be advanced that like in several countries I) it is not taxed at all, or ii) it is not taxed in the event of death claims, or iii) it is not taxed if the policy has been in force for a specified period.

Your overall hopes regarding the budget please:

It is going to be tough for the Finance Minister, but I hope that he takes effective steps to control expenditure. Concentrating only on revenue raising exercises will not be enough to bridge the fiscal deficit. Infrastructure, or lack of it, continues to remain the major impediment to growth. Outside the budget process, policy initiatives are needed which will ensure quick financial closure. In the budget exercise, the Finance Minister can direct additional domestic household savings into the infrastructure sector through insurance and pension industries. Appropriate incentives should be offered to the household sector for this purpose.

The Finance Minister must use the housing construction sector to fulfil the demand for generating additional employment. This sector is the extremely labour intensive, and hence incentives should be given to encourage construction activity. States should be penalized financially if they do not scrap the Urban Land Ceiling (and Regulation) Act. Xenophobic mindsets should not come in the way of opening up the construction sector to overseas investments in the form of equity.

I hope that there is no tinkering with the direct tax rates. We need stability. If there is a regime of stable tax rates, industry will not have this all consuming obsession with taxes, and will then get on with running their businesses on the basis of real issues rather than taking decisions which are tax driven.

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