Already reeling under heavy underwriting losses, the general insurance industry will now have to share a part of its investment income with the tax collector starting April next year. This year’s Budget made it clear that investment income of the general insurers will be considered as income and, therefore, will be taxed. Companies will have to pay around 33 per cent as tax on such profits.

The directive will have an adverse impact on the health of the industry and put pressure on the premiums, say industry experts. In light of these challenges, Insurance Regulatory and Development Authority (IRDA) chairman J Hari Narayan has written to the government highlighting the implications of such a move.

“We have asked for a uniform tax treatment with respect to other companies. Normally, companies are taxed at 10 per cent, but general insurers will get taxed at around 33 per cent, which is unfair. Moreover, companies made substantial underwriting losses last financial year and this tax will add to the burden,” the chairman told The Indian Express.

General insurers usually do not make any profits on underwriting and usually use investment income to offset losses incurred. Underwriting losses are defined as the excess of claims over premium. According to industry estimates, general insurers incurred underwriting losses of over Rs 5,000 crore last year. The investment income for National Insurance stood at Rs 1,039.62 crore, followed by United India at Rs 1,042.60 crore. Private insurers, on the other hand, have investment income running in three digits.

... contd.