The growth of high-value insurance policies has been subdued in the first half of the current financial year following the government's decision to tax such products in this year's budget. Finance Minister Nirmala Sitharaman proposed in the budget that insurance policies with an aggregate premium over Rs 5 lakh and a taxable maturity amount would not be exempt from tax, effective 1 April 2023.
During the post-earnings analyst meet, Niraj Shah, ED & CFO of HDFC Life Insurance, mentioned that the business exceeding Rs 5 lakh has declined, contributing nearly 6 per cent to HDFC Life's business with negative growth. In contrast, policies with premiums less than Rs 5 lakh, constituting 90 per cent of the company's business, have experienced an 18 per cent growth, neutralising the impact on overall ticket size.
Amrit Singh, CFO of Max Life Insurance, also noted a 21 per cent growth in the less than Rs 5 lakh segment, while the more than Rs 5 lakh segment has moderated compared to the previous year. Some companies observed a potential shift from these policies to Unit Linked Insurance Plans (ULIPs) due to the tax exemption provided to the category.
According to ICICI Prudential Life Insurance, the non-linked Annualised Premium Equivalent (APE) mix declined from 28.8 per cent in Q2FY23 to 25.8 per cent in Q2FY24, while the linked APE mix increased from 41.1 per cent to 33.9 per cent during the same period, indicating a possible migration to linked products.