Base effect to hit life insurers' March biz

New business premium (NBP) growth of life insurers in March is expected to be weak owing to the high base effect in the year-ago period due to revision in taxation norms for high-value policies, insurers said.

In the Budget, Finance Minister Nirmala Sitharaman proposed that insurance policies (excluding unit-linked insurance plans or Ulips) with an aggregate premium exceeding Rs 5 lakh would be taxed.

This rule came into effect on April 1, 2023.

In March 2023, the NBP of life insurance companies witnessed a strong growth after the tax announcement.

Premiums rose by 14.45 per cent year-on-year (Y-o-Y) to Rs 59,608.83 crore in March 2023 from Rs 52,081.12 crore.

Individual premiums of life insurers during the period increased by nearly 27.74 per cent Y-o-Y to Rs 26,241.14 crore.

Private life insurers, who dominate the individual premium segment, saw 44 per cent growth in premium to Rs 15,884.99 crore.

NBP is the premium acquired by life insurance companies from new policies for a particular year.

It is the sum of the first-year premium and single premium, reflecting total premium received from new businesses.

“The private insurance industry has grown by 11 per cent on the total retail premium up to February 2024.

"In March of the previous year, business received a strong boost due to the change in tax rules.

"One of the immediate impacts of the new tax rule, which was implemented from FY24, was a 44 per cent increase in retail business for March 2023,” said Casparus Kromhout, managing director (MD) & chief executive officer (CEO), Shriram Life Insurance.

Life insurers may find it difficult to record a similar growth in March 2024 due to the high base effect and a decline in sale of policies with annual premiums exceeding Rs 5 lakh.

“March 2023 was better compared to March in the year-ago period.

"There was some pulling forward that occurred last year due to change in taxation norms.

"So, this March is going to be a bit challenging for companies and it will be very difficult to attain the levels observed last March.

"Overall, this year is also likely to end on a flat note,” said Saurabh Bhalerao, associate director, CareEdge Ratings.

Voicing a similar opinion, Kromhout noted, “In March 2024, the industry would find it difficult to show strong growth due to the high base effect.”

Similarly, another insurance official said life insurers will find it difficult to show a growth in premium in March 2024.

However, the number of policies in the industry is likely to see an increase on the back of change in taxation norms and buoyant equity markets.

“During the last three years, growth in the number of policies has been practically zero for the private life insurance industry.

"But for the first time, policy count is likely to grow this year.

"One of the factors likely to contribute to this growth is that business above Rs 5 lakh has come down and we have partly compensated for this through growth in the number of policies.

"Also, there has been an uptick in Ulips for the industry in the last one year due to supportive markets,” the insurance official said.

Several private players also moved to Tier-2 and Tier-3 cities and in the less than Rs 5-lakh segment to compensate for the loss of business in the higher-ticket segment.

“Till February, the growth in the number of policies (individual segment) is only 10 per cent for the industry and percentage increase in premium terms is 3 per cent.

"Overall, we anticipate a muted impact on business from these changes,” said Atri Chakraborty, chief operating officer, IndiaFirst Life Insurance.

During April-February of FY24, the number of policies (individual) of private life insurers grew by 9.8 per cent Y-o-Y to 7.45 million.