The world came to a standstill when the Covid-19 pandemic hit in late 2019 which went on to impact people across the globe, changing the way they work, live, and manage their health. The coronavirus outbreak could well be a watershed moment for the insurance industry in India. Businesses shored up and there was a revival in the Indian economy. The silver lining in the journey was the growth opportunity presented by the insurance sector.
India is a unique market in the sense that whole life insurance coverage is up to 100 years of age while the premium is payable for a limited duration only, as defined in the policy document. Moreover, as per Section 45 of the Insurance Act, 1938, insurers can question the policy issuance only within the initial three years of the policy on grounds of misrepresentation or suppression of material facts. Yet, the overall life insurance penetration in India stands at only 3.2% in FY2020-21, despite growing by 13.5% over the previous period
The COVID-19 pandemic was surely a black swan event; one which was least anticipated and that which caused the most disruption to humankind. Consequently, Indians on average have become more accustomed to the risks posed by such pandemics and are increasingly opting to secure themselves by purchasing one or more life and health insurance products. According to IRDAI’s annual report for FY2020-21, standalone Health insurers reported a 14.34% growth in the number of policies issued while life insurers witnessed a 9.7% growth in premium underwritten compared to the previous fiscal. That said, the remarkable 26% growth in single premium income received by life insurers alludes to the increased insurance appetite that is gaining ground amongst Indian consumers.
Withmany having realized how fragile their lives are in the face of an event such as the COVID-19pandemic, there has certainly been a change in the general public’s outlook regarding life insurance. As a result, the life insurance penetration level is set to increase in the short term considering the increased demand for life insurance products. Besides, with a low-interest rate regime having impacted earnings from traditional financial instruments like fixed deposits, there has been a sharp uptick in the number of Indians opting to invest in Guaranteed income or savings plans offered by life insurers.
These plans provide a life insurance cover while also guaranteeing tax-free returns and some life insurance products offer more than six per cent guaranteed returns on the premiums paid if you pay for a specific number of years and receive benefits as per the product design if it suits your needs. With options including a lump sum payment on maturity or regular payouts for years, these plans are being lapped up by those wanting to secure their loved ones while also earning guaranteed returns on their capital investment. Similarly, in the health insurance space, sales of critical illnesses health insurance cover and top-up plans have surged as more people gravitate towards securing themselves from financial risks that may arise in case of an illness.
From an industry perspective, life insurers were burdened by a high number of claims in the first half of FY2021-22 and have seen their bottom lines being severely dented as a result. There has been an increased focus on being more vigilant during the customer onboarding stage to weed out fraudulent or misrepresented claims. Additionally, life and general insurers are enhancing their efforts on data cleansing to mitigate insurance risks associated with individuals who have a history of suppressing pre-existing illnesses or health conditions.
Lastly, with both life and health insurance premiums having seen a moderate increase over pre-pandemic levels, pricing pressures could result in consumers moderating their policy coverage. In the case of life insurance premium rates, the increase was anticipated considering the historically low term rates in India and tougher underwriting norms employed since the pandemic.
Nevertheless, with the COVID-19 pandemic entering the endemic stage and the world gradually returning to normalcy, we may see these inflationary pressures wane gradually. It will be crucial for insurers to sustain the current demand curve by introducing tailored insurance products aimed at fulfilling the requirements of India’s large uninsured population base.
Bikash Choudhary is the Appointed Actuary and Chief Risk Officer at Future Generali India Life Insurance Company Ltd.