From term insurance to investment-linked insurance, how Covid-19 may impact life insurance in India

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Updated: Jun 19, 2020 4:31 PM

Like most other industries, the outbreak of Covid-19 pandemic has impacted all types of insurance, including life, general and health insurance.

life insurance, term insurance, investment-linked insurance, Long-term savings insurance, impact of Covid-19 on life insuranceLong-term guarantees will look attractive, but insurers will face constraints in continuing to marketing these products as interest rates plummet.

Like most other industries, the outbreak of Covid-19 pandemic has impacted all types of insurance, including life, general and health insurance, which will get further impacted as the crisis intensifies.

So far as the life insurance industry is concerned, it normally deals with pure risk term policies, investment-linked policies, and savings policies with guaranteed/semi guaranteed long-term returns. There will be impact across the board, but the reasons will be different for each category, according to a recent report by PwC India.

Here’s how life insurance industry will get impacted by Coronavirus:

Term insurance: With any crisis, there is a rush to increase one’s cover. Pure life covers should see renewed interest, and since that is largely an online market, it should see a boost in demand. However, with people’s cash position being unstable, there may be reluctance to take a higher cover. Also, higher covers bring in medical tests, which people will be reluctant to do. Hence, a temporary slump in sales activity is anticipated.

Long-term savings insurance: Long-term guarantees will look attractive, but insurers will face constraints in continuing to marketing these products as interest rates plummet. Moreover, people may also start valuing liquidity and hence, there could be stress on long-term pension products. Commutation may go up, and the overall propensity for these long-term products may decline.

Investment-linked insurance: Consumer confidence in the stock market will be badly hit and hence, only a few savvy customers who believe in buying at the bottom will start new policies now. Existing customers would be well advised to stay put and not try to redeem prematurely as the SIP rupee cost averaging is going to help them. Overall, the heightened interest in insurance will be difficult to convert to actual sales, unless the industry moves to online fulfilment in a big way, with analytics-led customer segmentation and selective medical underwriting.

The study by the IAI has modelled the escalation of deaths in the country. The range of deaths modelled as on 30 June from the lockdown cease case to the worst case scenario is from 20,346 to 37,587, with 11,604 as the best estimate. This would definitely put stress on the life insurance claims, both in terms of dispensation and amount.

Timing: Sales of life insurance have been hit at a time when they are most remunerative – the year end in March. Since the highest share of policies is still sold face to face, either by agents or by bancassurance executives, social distancing norms and further apprehensions are an obstacle which the industry has to conquer in the coming months. Simple digital solutions to buy and sell may not bridge the gap, as the consultative sales process is iterative and complex. Many illustrations have to be offered to a customer normally, and the in-person interaction would have to be substituted by an equally powerful digital process which simulates social proximity and helps the seller to gain the trust of the buyer, says the PwC India report.

The buyer-seller trust deficit has to be bridged now, and insurers have to understand the behavioural economics of this and also the transaction EQ which finally results in a complex long-term financial decision that goes beyond life.

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