How Covid-19 has changed the direction of life and non-life insurance

Updated: Jun 11, 2020 4:25 PM

Although the domestic economic activity has begun its slow resumption, it will take a while to stabilize. As one of the greatest economic challenges India has witnessed since 1979, lower GDP growth and lockdown has already given a blow to motor insurance and travel insurance.

Coronavirus Outbreak, Novel Coronavirus COVID-19, global pandamic, life insurance, Life Insurance Corporation of India, LIC, weighted received premium, WRP, HDFC Life, SBI Life, IPRU Life, Max Life, Covid-19 questionnaireInsurance cover for employee benefit plans, fire, engineering, property, or marine had seen a drop because of the slowdown.

The impact of the novel coronavirus is palpable across various sectors such as travel, hospitality, aviation, and automobile. The growing number of COVID-19 positive cases has resulted in an air of uncertainty in the insurance sector too. With consecutive lockdowns and social distancing norms, insurers have had a first-hand experience of business loss. As attempts to revive the Indian economy are made by the government, there are chances of seeing a jump in the demand for a risk cover following the COVID-19 pandemic. This is expected to create an opportunity for insurers to penetrate the market with products that offer security to life and health, in particular.

Following the government’s announcement of a relief package and Lockdown 4.0 with partial relaxations, there is an increased interest in policies to make healthcare accessible and affordable especially in times of perils like the ongoing COVID-19 pandemic. However, some cities continue to reel under the soaring number of positive cases, which will increase the number of claims.

Although the domestic economic activity has begun its slow resumption, it will take a while to stabilize. As one of the greatest economic challenges India has witnessed since 1979, lower GDP growth and lockdown has already given a blow to motor insurance and travel insurance.

Insurance cover for employee benefit plans, fire, engineering, property, or marine had seen a drop because of the slowdown. However, due to the announcement of making health plans mandatory for employees, a rise in the product can be anticipated. Moreover, due to a natural disaster, Amphan and other perils causing gas leakage and fire in a chemical plant, there could be a significant rise in this category and will continue to grow at a gradual rate.

However, the larger problem for general insurance companies will be in the motor insurance business. With around approximately 40 per cent of market share dominated by new premiums in the non-life industry, dropping auto sales numbers are expected to impact the motor insurance business in the months to come. The auto industry, which was battling the impact of the economic slowdown and falling demand, along with lower production with the transition to BS-VI emission norms affecting wholesale dispatches, will be subjected to further pressure by the aftermath of this pandemic.

The silver lining for the insurance industry will be on the health business side, this segment is likely to accelerate going forward. Investors are recognizing the importance of health insurance after the recent unprecedented crisis. Health insurance has a market share of around 26-28 per cent in the non-life insurance industry. Having said that, exact implications on general insurance will be uncovered as the economic situation progresses.

In the life insurance market, private life insurers reported a 40 per cent Y-o-Y decline in individual annualized premium equivalent (APE) in March 2020 as the business was practically shut for crucial parts of the month. But it is likely that in light of the current circumstances, there will be a surge in the term life product.

However, as the outlook of equity markets in this financial year turns volatile, Unit Link Insurance Plan (ULIP) sales are likely to decline and may even see the lowest numbers. But, policyholders are advised to continue with their investments in insurance products instead of canceling the policy mid-way or surrendering it. In fact, policyholders can make the best of this time to restructure their insurance portfolio for a better future.

There will be renewed interest in the non-participating guaranteed and Savings plan products by the investors as they go slow in buying ULIPs. Due to the current circumstances, motor and travel insurance have suffered the most in terms of Y-o-Y premium growth. Whereas, fire and health have seen an upward trend so far. Even the demand for liability cover has increased.

In such a circumstance, digital adoption and customer-centric insurance products will play a crucial role in making the transformation that is much needed in the insurance industry.

By, Rakesh Goyal, Director, Probus Insurance, Insurtech Broking Company

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