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Motor cover premium rates to rise

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March 1

The Budget 2006-07 is likely to seen an up tick in both general and life insurance premiums as a result of an increase in service tax to 12.5 per cent from 10 per cent.

Mr Kartik Jain, Head Marketing and E-Channels, ICICI-Lombard General Insurance Company Ltd said, "There will be an impact on motor insurance premiums." However, for other sectors such as industrial risk, marine, health and aviation, insurers have the discretion to either pass it to customers or absorb it themselves.

At present, general insurers collect premiums in excess of Rs 25,000 crore per annum. Consequently, the incremental revenue impact for the government as a result of the increase is expected to be about Rs 500 crore per annum.

Mr Venkatesh Mysore, Managing Director, MetLife Insurance Company Ltd said, "Service tax is a pass-through item for life insurance premiums." Therefore, it would be passed on to policyholders, he added. The revenue impact to the Government is likely to be about Rs 600 crore.

Life insurers were guarded in their response. Mr Stuart Purdy, Managing Director, Aviva Life Insurance, said, "Even though the Government has not announced an increase in FDI to 49 per cent as was promised in the last two budgets, we welcome this announcement and appreciate that the Government is giving due importance to the insurance sector."

Mr Purdy, however, added that the reduction in the fringe benefit tax (FBT) on superannuation was welcome.

Mr Gary R. Bennett, CEO of Max New York Life, said the budget for the insurance sector, was a mixed bag. FBT on superannuation has been rationalised and will help the group insurance business to grow.

On the other hand, the unique value of life insurance as a long-term provider of protection and savings has not been recognised. Tax emption limit of 80 C has not been enhanced and its limits are inadequate in its current form.

"We are disappointed with the increase in the burden of service tax, which will raise input costs."

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