The pandemic has pushed businesses across sectors to change the way they operate and the insurance industry is no exception. From selling new policies to settling claims, the extended lockdown in the wake of covid-19 has pushed insurance companies to depend heavily on their digital architecture.
A report by professional services firm PwC, titled Covid-19: Impact on the Indian Insurance Industry, says that the two productive months for the insurance industry-March for life insurance and April for non-life corporate renewals-have been hit by around 30% and 15%, respectively. It further emphasizes the changes insurers will have to bring about in terms of their product categories.
Health insurance
According to the report, private health insurance schemes cover only 18% of the population in urban areas and a little over 14% in rural areas. “Since the risk of covid-19 is not currently priced under active products, these claims may cause an additional burden on the books of insurers if treated outside government hospitals,” said the report.
However, Amit Chhabra, health business head, Policybazaar.com, an online insurance marketplace, said the number of claims for covid-19 is not really hurting insurers as much because the number of planned surgeries are down at the moment. For general insurers who have a mixed bag of products, motor claims are down due to the lockdown and social distancing which means their loss ratio is down too.
“Planned surgeries will happen eventually and claims could go up then. But it’s also important to note that covid-19 claims are not very high in number because the percentage of people covered under health insurance is quite low. As a percentage of the total number of cases, the claims filed are very less,” said Chhabra.
Insurers believe the fear around covid-19 has pushed people to buy health insurance. The report said inquiries about health insurance policies have increased by about 30-40%. But the issue now is the lack of data related to patient profiles, morbidity rates, and the course and cost of treatment which is required to underwrite risk and determine the premiums for products that are designed specifically for covid-19.
Companies are consequently at the risk of under or overpricing their products, said the PwC report. “Based on the emerging experience of Covid-19 claims, insurance companies will need to test the hypothesis of the state-wise or district-wise possibility of escalation of claims.”
General insurance
A large proportion of this industry is dependent on industries and businesses such as automobile, travel, hotels and infrastructure. So challenges in these sectors due to the lockdown could create additional issues.
The automobile sector was witnessing a slowdown even before the pandemic set in. The over 70-day lockdown leading to job loss and pay cuts across most industries will put the purchase of new vehicles on the back burner, hurting the motor insurance space further.
“Normally, that (lack of new purchases) would be compensated for by increasing the coverage net of existing vehicles, a vast majority of which fall out of the insurance net by the third and fourth years. But that would be difficult to do given the lack of distribution feet on the street,” said the report.
Animesh Das, head of product strategy, Acko General Insurance, said for every insurer, the motor portfolio dipped in April-May because customers delayed renewals and the sale of new cars was minimal. It’ll take two-three months for normalcy to return because the production of new vehicles is gradually getting back on track,” he said.
For motor insurance, the number of claims has come down to less than 5% of the normal which led to some savings for insurers.
The report said that there is a possibility of vehicle owners considering own damage (OD) as a luxury and retaining only the third-party component for a while. Even multiple-year third-party insurance may see drop-offs despite being compulsory. Das said this could be the case for the next few months but given that users will prefer using their own vehicles, the sale of OD components won’t take a hit for long.
On the personal accident front, too, low claims are expected due to lack of activity and movement, and also lower renewal of policies. This is a category where penetration is clearly very low and insurance companies would do well to concentrate and try to increase business here as it is not dependent on underlying economic activity, said the report.
Life insurance
With a crisis like this, there is a rush to increase one’s cover. According to the PwC report, pure life covers should see renewed interest, and since that is largely an online market, it should see a boost in demand.
“We have seen two key areas of impact-primarily, we see greater awareness of being protected and protecting loved ones from unforeseen risks. In line with this, consumers are more inclined towards pure protection covers leading to an increased demand for term plans,” said Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance Co Ltd.
Long-term guarantees will look attractive, but insurers will face constraints in continuing to marketing these products as interest rates plummet. He added that the overall uncertainty in the environment, the market volatility and the falling interest rates have made an average consumer more cautious.
The report said investment-linked products could also experience a drop in demand as consumer confidence in the stock market is shaky. “Overall market volatility and falling interest rates have taken the focus away from products that have long-term savings and variable returns through linked instruments or annual bonuses. This has led to consumer confidence shifting to products with guaranteed returns and benefits, such as non-participating plans apart from the shift to pure term plans,” said Gandhi. – Livemint
