Term insurance to become more expensive soon; Here’s why

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Updated: Jan 03, 2020 1:46 PM

A key Reinsurer has sent notices to all its portfolio group insurance companies that prices will be revised upwards in the next 90 days.

term insurance, life insurance, term life insurance, reinsurer, insurance company, term insurance plans, Term insurance to become more expensive, mortality rate, Indian customer,As Reinsurers increase their cost price, life insurers will take strategic calls on term insurance pricing through trade-offs between profitability and price.

A recently-conducted exercise by one large Reinsurer over the last three months suggests that reinsurance premium rates for individual term insurance business need to increase. Reinsurers are the end risk owners of a Term Insurance contract and hence determine the price along with the insurance company which is finally passed on to the customer.

Today’s Term Insurance prices work on a key assumption that the rate of mortality of the pool of customers which can be enrolled under the current competitive term insurance plans will be approximately 1/4th or 25% of the death experienced for average Indian population. If you go one level deeper, the online prices which are further cheaper are built on the assumption that 1/5th or 20% approximately may be the mortality rate of the average Indian customer.

This is because online caters to a more affluent segment of customers and hence better life expectancy. Offline prices which are higher than online are built on the back of mortality assumption being roughly 1/3rd or 33% of the mortality rate of the average Indian population. The current prices are an outcome of this base assumption which is now getting challenged.

A key Reinsurer has sent notices to all its portfolio group insurance companies that prices will be revised upwards in the next 90 days. As the Reinsurer revises rates for life Insurers, insurers may be forced to revise the end price for the customer. The trends on actual mortality experience emerging for this book of customers that the reinsurer has evaluated, though might be early trends, but then these trends are well indicative enough of the fact that the actual experience versus what has been priced for is likely to be worse off. At an individual insurance company level this trend may not be credible yet, however, when Reinsurers look at the results for all the companies together, the results are credible.

As the Reinsurers increase their Cost Price, Life Insurers will take strategic calls on Term Insurance Pricing through Trade-offs between Profitability and Price. Since Life Insurance companies depend on Term Life Insurance as the major source of profitability in the long run, the likely outcome is going to be price increase for customers. We should see some bit of premium rate correction happening in the near future with all key brands adjusting to the new reality over the next 3 to 12 months.

(The author is Chief Business Officer-Life Insurance, Policybazaar.com)

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