Travel policies will also be affected due to flight cancellations. The public might avoid travel in the near term unless it is an emergency
- By Ravi Singh
India is still reeling under the impact of Coronavirus and lockdown. It has a wide-ranging impact across the sectors of the economy. In some cases, the impact is minimal and short-lived. However, in case of some sectors like insurance, the impact is going to be negative in the near term as it will be hit from multiple directions. In the long run, it is expected to change the way Indians look at protection cover and bring some long-lasting positive changes in the very long run.
Q4 is a seasonally strong quarter for the Indian insurance industry. But due to the pandemic and lockdown, this year it is going to be a washout period both in terms of new business growth and renewal premium growth. The IRDAI has extended the grace period for payment of premiums due in March 2020 and April 2020 to 60 days, affecting the renewal premium growth. Further, IRDAI has asked insurers to cover coronavirus cases in their existing policies and process the claims immediately. Also, some life insurers may also see an increase in claims as the death toll in India is increasing. With death claims set to rise on account of COVID 19 and no force majeure being enforced by Life Insurance companies, this may entail higher claim settlement in the current year.
However, both general and life insurers will see a setback in terms of lower income on their investments and erosion of value. Also, the portfolio risk will be huge and might have to face sharp markdowns and higher market-to-market losses while arriving at the fair values of their investments due to sharp market correction. Further, the ongoing market crash might also keep investors from purchasing fresh ULIPS and many existing investors might have already pressed the exit button.
For life insurers, it would be a double whammy of an increase in claims and portfolio risks. In the future premiums might witness a rise and insurers might go slow or revisit policies that offer complete coverage. Premium on Life insurance policies could rise and this would impact the number of policies issued. For general insurers, however, it will be positive as they can launch new disease-specific products, that may pay for diagnosis and treatment expenses in case of the event. General insurers’ gross direct premium income was up by 14.4% YoY in Jan/Feb-2020 due to a combination of highly granular nature of products and due to COVID-19 targeted indemnity health products launched by some private health insurers. Weak auto sector might also affect new business growth of motor policies. Travel policies will also be affected due to flight cancellations. The public might avoid travel in the near term unless it is an emergency.
However, this could be an inflexion point for the insurance industry. To a large extent, the insurance industry depends on offline distribution network. This should be an opportunity to completely revamp the distribution network and switch to online distribution especially when fintech is flourishing. This should also bring a change in the way Indians look at insurance and realise the need for insurance coverage at least from core health insurance and life cover perspective. Getting back normalcy depends on how effectively we control the spread and the time it takes to stand up on our feet.
(Ravi Singh is VP- Head of Research, Karvy Stock Broking. Views expressed are the author’s own.)