The Budget proposal of removal of tax exemptions on insurance premiums under the new tax regime is negative for insurance companies which will face some collateral impact, ICICI Securities said in a report.

According to the proposal, individuals opting for the new tax regime have to forgo all the exemptions including life insurance premiums.

“The insurance companies can witness some collateral impact in terms of reduced purchase inclination post removal of tax exemptions,” ICICI Securities said.

As per income tax statistic for AY 2018-19, total taxpayers stood at 58 million, of which 15 million fall under the bracket of Rs 5 lakh to 10 lakh income levels.

This segment could be sensitive to the available tax exemption in order to buy insurance. While this segment is only around 5 percent of the total individual policy universe, it is a sizeable 50 percent of the annual new policies issued, the brokerage said.

Over a period of time, ICICI Securities expects, insurance companies to adjust the pricing curve to keep the cost of insurance same for consumers without tax advantage.

“The business fundamentals remain the same. Removal of tax incentive will drive the purchase intention of insurance to fundamentally address the risks of longevity, mortality and morbidity. As such, more diversified companies like HDFC Life are better placed than peers,” the brokerage said.

Under the new tax regime, removal of section 80D will imply no tax exemptions on health insurance premiums.

This will result in the rise in the cost of medical insurance for individuals which could impact growth in health premiums.

The brokerage expects this would be negative for ICICI Lombard General Insurance Company.

“However, the impact will depend upon the quantum of people who remain cost-sensitive to buying medical policy under no tax exemptions. Over a period of time, we expect general insurance companies to adjust the pricing curve to keep the cost of insurance same for consumers without the tax advantage,” ICICI Securities added.

Further, in order to ensure that the amalgamated entities are able to take the benefit of unabsorbed losses and depreciation of the amalgamating entities, the finance minister Nirmala Sitharaman proposed to make necessary amendments to the provisions of the Income-tax Act.

This will be positive and should benefit the amalgamation of the public sector general insurance companies, according to the brokerage.