Life insurers may see short-term pressure on profitability due to pandemic: ICICI Pru Life

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June 20, 2021 6:20 PM

The company's total premium income during FY21 was Rs 35,733 crore of which Rs 13,032 crore was new business premium.

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The domestic life insurance industry may see pressure on its profitability in the short-term as the coronavirus pandemic has cast doubt on the certainty related to morbidity and mortality in the country, ICICI Prudential Life said in its annual report.

India became an epicentre with a spike in cases in the second wave of the pandemic, amidst shortage in medical supplies. There are concerns about the possibility of a third wave hitting the country, ICICI Prudential Life said in its annual report for 2020-21.

In FY21, the life insurance industry reported a modest 3 per cent growth in new business premium, said the report, adding the industry continues to get a higher share of household savings because of the increased attractiveness of life insurance savings products, the unique proposition of protection and annuity products among others.

“In the short-term, the profitability of the insurance industry is expected to be an area of concern given the increase in mortality and morbidity rates induced by the pandemic. Even more than a year after the pandemic first struck, there continues to be significant uncertainty regarding its absolute impact on mortality and morbidity experience,” the insurer said.

The pandemic has posed multiple challenges for the Indian life insurers. The onset of the pandemic saw a sharp fall in equity prices, while interest rates also declined.

Insurers have exposure to equities in unit-linked and participating businesses. Thus interest rate movements impact their liabilities and guarantees based based schemes. While, a credit risk can impact their investments made incorporates.

The sharp movements in markets, coupled with any asset liability mismatches that insurers may have, can impact the solvency position.

The report said there are emerging risks related to environmental, social and governance (ESG) issues on the insurance industry of which climate change is a bigger challenge.

Apart from climate change, there are emerging risks associated with public health trends such as increase in obesity related disorders and demographic changes such as population urbanisation and ageing, said the report.

Industry’s growth even during the pandemic shows a promising future for the domestic life insurance sector, however, the pandemic has also exposed the gap the protection gap in the country, said the report.

The number of Covid-19 related death claims is fraction of the number of overall lives lost, highlighting the vulnerability of the families, ICICI Pru Life said.

The insurer said it has become imperative for every working individual to add life insurance as a key ingredient of financial planning.

During the year, the pandemic amplified the need for life insurance among people, leading to the category slowly moving from being a “push product” to a “nudge product”, ICICI Prudential Life Insurance said.

The company’s total premium income during FY21 was Rs 35,733 crore of which Rs 13,032 crore was new business premium.

“On the back of the risk-averse behaviour of our customers, there was considerable interest for traditional long-term savings products which grew by 61.2 per cent for the year. Similarly, annuity products registered a robust 120 per cent growth year-on-year.

“With ULIPs (unit linked investment plans) at 48 per cent, traditional savings products at 31 per cent, protection at 16 per cent and group products at 5 per cent, we now have a well-balanced product mix which now insulates us better from market volatility,” said the insurer.

It has become imperative for every working individual to add life insurance as a key ingredient of financial planning.

“We believe the lessons learnt from the pandemic will lead to a paradigm shift in the way businesses operate. We are already observing the pace of digital and technological adoption moving at a frenetic pace compared to the pre-Covid-19 era,” said N S Kannan, Managing Director & CEO, ICICI Prudential Life in his message to shareholders.

The under-penetration of life insurance in the country offers an excellent opportunity to life insurers with innovative product offerings and simplified processes, the insurer said.

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