Several changes will take place in insurance sector from April 1, 2023. This includes removal of tax free advantage from savings insurance plans whose annual premium is above Rs 5 lakh and omission of commission cap for insurance agents. These changes will impact people in a number of ways.

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Insurance taxation changes from April 1

From April 1, if premium paid by an individual for a savings life policy is more than Rs 5 lakh than on maturity the income from policy will be taxed. The threshold of Rs 5 lakh will be applicable on first year premium and not first year + renewal.

This will, however, not impact taxation of unit-linked insurance plans (ULIPs), term insurance and old policies, The income from insurance policies with aggregate premium up to Rs 5 lakh shall be exempt. This will not affect the tax exemption provided to the amount received on the death of person insured. It will also not affect insurance policies issued till March 31, 2023.

On the impact on industry, Rushabh Gandhi, Deputy CEO at IndiaFirst life Insurance said the policies applicable for the new taxation are some 1 percent of the entire business.

"So, this means the impact will be fairly muted. Also, considering the recent changes in debt funds taxation the little bit of disadvantage will get offset by little bit of advantage. Consequently, the outcome will be neutral," Gandhi told CNBC-TV18.com.

Finance Bill 2023 has made major changes to debt mutual funds, which relates to exclusion of long-term capital gains and indexation benefit. This move looks disappointing for the mutual fund industry, however it's a blessing in disguise for life insurance companies. Industry experts have been saying that the announcement can make long-term savings life insurance products more attractive than debt fund schemes again.

Removing sub-limits on expenses and commissions of policies

The insurance regulator has revised Expenses of Management (EOM) and commission limits for the industry, which will come into effect from April 1, 2023. This will replace the earlier cap on commission payments with an overall cap on expenses of management of insurers. The move is widely believed to provide more flexibility to insurers in managing their expenses.

"With this, insurers can strategically allocate resources towards targeted areas, such as under-penetrated markets, which can be vital to achieving long-term growth and profitability. This, in turn, will help to address the industry's high combined ratio of 118.5 percent by improving efficiency and reducing costs," Rahul M Mishra, Co-founder & Director at Policy Ensure told CNBC-TV18.com.

Tapan Singhel, MD & CEO at Bajaj Allianz General Insurance feels that this will translate into better pricing and products for customers in the medium to long term.

"The revised regulations also provides for an extra expense allowance for insurtech expenses, spends on insurance awareness, and rural and social schemes of the government," Singhel said.

Anil Kumar Aggarwal, MD and CEO at Shriram General insurance further believes that this will increase insurance penetration and provide flexibility to insurers in managing their expenses.

Overall, it will smoothen adherence to compliance norms.

On consumer benefits, Vikas Mahajan, Director and Head-Finance & Compliance at GramCover said that the new mandate will provide all policy-related information upfront to customers, including the policy's features, benefits, and premium amount.

"Insurers are also required to obtain explicit consent from customers before issuing policies electronically. This ensures that customers are fully informed about the policy they are purchasing and have consented to its terms and conditions," he added.