INTRODUCTION:
As the COVID-19 pandemic continues to unfold, what began as a health crisis is quickly turning into a financial one. The global economy is in turmoil and expected to shrink significantly. Although potential scenarios depend on to what extent Corona Virus spreads and the readiness of our country’s public-health systems to respond to this Corona Crisis. Life and nonlife insurers will be exposed to claims from the outbreak of the Coronavirus, according to analysts, but there is a sense that claim levels on both sides of the industry could be constrained by low insurance penetration in India and restrictive policy languages as written down in fine prints of the policy documents that are issued by the Insurers.
But insurance claims may not reach the levels suggested by the case numbers, even in China, where the bulk of the cases remain concentrated. Taking life and nonlife together, Moody’s said Feb. 4, 2020 that it expected 2019-nCoV claims overall to be “low” and that so far “there has been limited adverse impact on Chinese insurers.” The rating agency said the Chinese province of Hubei, which includes Wuhan, accounts for around 4% of both life and nonlife premiums in China, with greater insurance penetration typically found in the “affluent coastal cities.” Hannover Re CEO Jean-Jacques Henchoz said Feb. 5, 2020 that there would need to be “a significantly bigger scenario” that went “way beyond” the SARS outbreak in 2003 to hit the German reinsurer’s mortality business. Hannover Re executive board member Sven Althoff said coverage for non-damage business interruption resulting from infectious diseases is “mostly excluded” from both property and aviation business, although there are some sub-limits that offer coverage. Philip Kett, an equity analyst at stockbroker Jefferies, said in a Feb. 4, 2020 in his research note that “…because the deaths so far had been in regions and socioeconomic groups where there was a high protection gap, the life insurance ramifications would appear to be limited- almost all critical illness policies cover named perils, it would appear unlikely that this virus is a covered event, in the existing policy coverages. It’s possible that the virus could be more material for the nonlife sector than life because of potential claims from travel and business interruption insurance. Event cancellation would be one potential area for claims for international insurers and reinsurers.”
Life Insurance at this backdrop of Corona:
There is a lot of room for improvements in our life style if we act appropriately. Those actions include testing for the virus, tracing contacts, and reducing human interactions by stopping mass gatherings, absolute working from home and curbing travel. All schools and colleges are closed, sports events were halted or delayed, Broadway theaters went dark, companies barred employees from going to the office and most people said they were following hygiene recommendations on the principle of ‘Stay Home – Stay Safe’.
A year which could have been astounding year for life insurance industry in terms of business premium augmentation is suddenly staring at a situation where matching the last year’s premium figure seems an intimidating challenge. Last three months of FY 2020-21 have traditionally been the months which witnessed highest compilation for the Life Industry. Life insurance sector collected 17.4 per cent and 15.04 per cent premiums in the month of the March in FY18 and FY19, respectively. Now given the lockdown in critical second half of March, premium collection is bound to suffer significantly. “Impact is huge because most of the places are now under lockdown. Because of flight cancellations, travel policies are not being bought by customers. Buying new policies where insurers need to carry out medical tests are taking time and have slowdown. No more new policy issuance for NRIs or those with recent travel history. So, overall, insurance industry has been hit from many directions.
Life Insurance Sector stares at this ever-increasing death claim trend. Now, let us look at how the insurance industry is dealing with Novel Coronavirus, or COVID-19. Besides the loss of new business premium, the industry is watching at a challenge of increased death claims. Though government has acted proactively and gone for a complete lockdown of 68 days even before the number of death toll increased to surpass the figures of France, Italy to achieve the fifth position in the World. However, given the initial signs of community spread becoming evident and the size of the country, nothing can be taken for granted. It would be too early at this stage to comment on exponential increase in death claims in life insurance. If India is able to effectively control the spread, then, there could be lesser impact on life insurance claims. The next two months are very crucial, as India has tried to take a whole hearted step at early stage of the disease the chances of higher death rate and vividly going for more & more Covid-19 tests.
The threat still remains. Talking about life insurance policies, a number of establishments will continue to honour the claims on existing policies however; the cost of future policies will witness a steep surge and the number of policies that provide complete coverage might see a fall. There have also been some proactive steps taken by the industry on product innovation front. “IRDAI has asked insurers to come up new need-based products for coronavirus, and for which, a few insurers have come up with such need-based specific products to cater to the current requirements. Latest entrant Corona Covered Policies are ‘Defined benefit-based products’ where the benefit is paid on occurrence of the event and no bills are required. The industry has done well to find an opportunity even in such a situation; however, it still depends heavily on offline distribution which is bound to suffer. On top of it the market crash could end up deterring new ULIP investors and some existing investors may take the exit. The prospects of industry getting back its momentum and will definitely depend both upon the time that India takes to recover from both – (1) Coronavirus Crisis & (2) Market Crash.
In life insurance, low interest rates pose a risk to the profitability of existing nonparticipating portfolios. Insurers’ existing unit-linked insurance plan (ULIP) portfolio assets will be mostly unaffected, as customers will likely bear the brunt of the impact. However, new ULIP books and insurers’ bond and equity investments will likely drag for the next few quarters.
As individuals may be bored sitting at home due to the Coronavirus outbreak and browsing things that they could buy on e-commerce platforms. If yes, then considering he/she could spare about Rs 7,000 (for age 30 years or below) to Rs 12,000 (other age groups of 31 years and above), he/she would be able to buy a Rs 50 lakh life term insurance product within minutes that gives him/her only gives security part (but no maturity benefit) of cover in case illness & death of the assured. Amidst the COVID-19 pandemic, life insurance is necessary since risk of infection and mortality is high and a vaccine is yet to be discovered. While on a regular day, medical tests and several documents would need to be submitted to buy a policy, insurers are now waiving off medical tests and issuing policies after short video interactions. Purchasing a life insurance cover which is a must- have product for any individual with dependents at home, may also turn out to be cheaper since you would be buying directly from the insurers. This will cuts down commission costs. Yes, you could buy a policy online but terms and conditions of a product are not always clear over the internet and savings-led insurance does require a few clarifications before a purchase decision is taken, as the maturity value of any term insurance policy is always a Big Zero.
General Insurance Industry always has mixed portfolio:
The Fire Policies, Liability Insurance Policies and Health Insurance Policies are thriving in this current market being sold on-line / on digital platform, whereas the other Line of Businesses (LOBs) is definitely shrinking. COVID-19 is having drastic economic impacts on various industries, including business interruption and supply disruptions. Liability risks also exist, especially in industries like health care, hospitality, transportation, and retail. Businesses are well-advised to assess their risks and determine whether existing insurance coverage may help meet such exposures. Insurance products exist for business interruption, supply chain losses, event cancellation, exposure liabilities, and workers compensation for job-related exposures. Business Interruption and supply chain coverage, including Contingent Business Interruption, will typically require a showing of property damage that gave rise to the loss. General Insurance markets have restricted coverage for pandemic diseases, including coronavirus, through exclusions and sub-limited coverage and capping. If you feel you might have already covered in your Mediclaim Policy coverage, it is prudent to check the fine prints of your Health Insurance Policies with the help of your agent/corporate agent/broker who deal with your policy placement or may contact your concerned insurer’s dealing executives/staff for making queries relating to the scope of coverage of your existing Policies taken by you, or counsel to understand what kinds of protections you have for these exposures. Fire and Aviation premium saw one of the biggest rise this year however the given the fact that travel and tourism is the sector which have been worst hit by this crisis.
Given the changes in motor insurance by IRDAI, third party premium has seen a good surge of 14.3 percent in FYTD February 2020 as people are going for cheap alternatives for compliance.
The coronavirus pandemic is savaging the global economy, resulting in widespread business closures, near-universal event cancellations, working from home & attending/responding the mails of bosses, insured, intermediaries, like brokers, Surveyors, etc., working the cancellation of orders and slowing of deliveries, and a general disruption of supply chains. News reports indicate that the impacts are already being felt in virtually all industries. Travel, transportation, hospitality, education, health care, entertainment, and event planning are especially hard-hit, but most manufacturing and service activities are being disrupted. In recent years, the insurance industry has cut back on coverage available for pandemic diseases, introducing new or broadened exclusions and applying strict sub-limits to contain insurer exposure. Nonetheless, pockets of coverage continue to exist. It is important to make revised assessment now of your own business’s vulnerabilities and of the insurance you may have to address for blocking/minimizing your future losses.
Position of Business Interruption Insurance policies needed by corporate:
Many businesses carry Business Interruption (BI) insurance as a component of their first-party property insurance or as a freestanding policy. BI coverage protects against losses sustained due to periods of suspended operation due to property damage. In most cases, contagious diseases do not constitute property damage, especially when passed from person to person. Actual contamination of tangible property (as distinct from fear of contamination) may constitute property damage for insurance purposes. Likewise, contamination in HVAC systems has been held to constitute such property damage. If actual contamination of property forces your business to shut down facilities or assets, with concomitant losses, BI coverage may respond. But there are important limitations:
In recent years, particularly in the aftermath of the SARS epidemic, many insurers added specific exclusions for bacterial or viral infections to their coverage. We have seen both stand-alone Bacterial Exclusions and combined Bacteria/Virus Exclusions. It is important to understand that viruses are not bacteria. If your policy only excludes coverage for bacteria, you may still have coverage for the coronavirus. Insurers can also be expected to argue that their standard pollution exclusions apply to bar coverage. Whether viruses or bacteria are pollutants is a controversial question to which no settled rule yet applies. Specific policy wordings sometimes provide relevant definitions.
Situation of Supply Chain Insurance Products:
Some businesses have purchased supply chain insurance or Contingent Business Interruption (CBI) insurance to protect against losses stemming from supply chain disruptions. Policies exist to cover interruptions of deliveries of raw materials, parts or supplies, and specialized insurance has been written to cover vulnerable industries, such as health care providers, the hospitality industry and manufacturers. CBI insurance covers economic losses, typically including increased costs, from lost or reduced operations resulting from physical damage on the premises of a named or unnamed supplier. Finally, some supply chain and CBI policies may also cover loss of services to the insured business, such as loss of utility services. Limited coverage may also exist for loss of markets for your own products. Importantly, CBI insurance commonly covers only losses stemming from disruptions from specific suppliers scheduled in your policy. Moreover, CBI coverage usually requires that the supplier suffer the type of property damage that would be covered in the insured’s own first-party policy. As discussed above, this would typically require an actual contamination event to trigger coverage. CBI insurance may well be endorsed with the same bacteria and virus exclusions noted above.
in case of Event Cancellation Insurance policies:
Some of the insured may carry specialized Event Cancellation coverage. Variants of this type of insurance exist in the sports, entertainment and event planning industries (including convention planning). Such coverage may be written expressly to include specific insurance against cancellation because of infectious diseases. Nevertheless, we are learning that some insurers have already begun to insert endorsements to exclude coronavirus into this coverage. Policies written before the end of 2019 are unlikely to contain such exclusions. If you have purchased express coverage for infectious disease cancellations, be sure to check your policy to assure that no coronavirus endorsement has been added without your agreement.
GOOD MARKETING PROSPECTS FOR ISSUANCE OF VARIOUS ‘Liability’ POLICIES:
Many policyholders face a risk of liability for failing to protect others from exposure to infection on their premises. Providers of healthcare, transportation or hospitality services and retail establishments may be particularly vulnerable. Your general liability policies cover liability for bodily injury and property damage, and primary Commercial General Liability policies will usually provide a legal defense against such claims. Insurers with a duty to defend should meet that obligation if there is even a possibility of coverage for the underlying liability. Do not overlook this coverage if you face third-party claims, and do not back down if your insurer pushes back on the duty to defend.
Companies may also face claims for losses that do not involve bodily injury or property damage. Professionals may face claims based on failure to meet a duty of care that may be covered under Errors and Omissions insurance, and some companies or their managements may face claims for financial losses resulting from mismanagement of their response to the pandemic, which may be within the coverage of Directors and Officers policies. It pays to be mindful of these risks and understand the scope of the relevant insurance.
ISSUES RELATING TO Workers’ Compensation INSURANCE policies:
Workers’ Compensation insurance covers your employees who suffer injury or illness contracted in the workplace. This extends coverage to injuries “arising out of or in the course of employment,” meaning that claims for compensation must allege work-related losses. Coverage, based on “work-relatedness,” is analyzed based on the time the loss occurs, the place where the loss occurs, the specific activity the claimant was engaged in when the loss took place, and the specific nature of the loss. Thus, there would be a good argument for coverage of a health care worker who becomes infected because of exposure to patients on the job. In assisting employees with Workers’ Compensation claims, it will be critical to make a prompt, careful record of the time, place, and circumstances of the exposure.
Some companies may see employment-related claims related to injuries that are not covered by Workers’ Compensation insurance. For example, claims may be brought on behalf of family members who claim infection brought home from the workplace, or contractors may claim for injuries contracted on a company’s premises. Employers Liability insurance may provide coverage in some instances.
The best time to prepare for infectious disease exposures is before they happen. That includes taking careful stock of your risk pathways and assessing all the insurance that may become relevant. Pillsbury’s Insurance Recovery and Advisory Team experienced crisis management professionals are closely monitoring the global threat of COVID-19, drawing on the firm’s capabilities in supply chain management, insurance law, cyber security, employment law, corporate law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation.
Health Insurance to go through corona test:
Health Insurance segment has been one of the brightest spot in the general insurance category. This is offered by both multi line general insurance companies and specialized standalone health insurance companies as well. Health insurance premium through multi-line general insurance companies was Rs 46,774 crore till FYTD February 2020, whereas standalone health insurance companies collected a premium of Rs 12,560.96 crore during the same period. Taken together health insurance segment alone had a 34 per cent share in the total business of the entire General Insurance industry.
Corona is going to the biggest challenge the industry has seen so far. The disease has pan-India spread and there is very real risk of it spreading exponentially. Treatment of COVID-19 may need prolonged hospitalisation which could be costly. Many people have some form of health cover, be it corporate of personal health cover. However, as this virus is new, there is a lot of confusion if corona cases would be covered under existing health policies or not. To address the concerns of the policyholders and to bring clarity on the coverage of coronavirus, insurance regulator IRDAI came up with guidelines for the insurance companies on March 4, 2020. The IRDAI guideline stated: “Where hospitalisation is covered in a product, insurers shall ensure that the cases related to coronavirus disease shall be expeditiously handled.”
Many health insurers came forward and clarified to their policyholders about the coverage of corona. However, on March 11, 2020 WHO notified COVID-19 as pandemic and hence health insurers are no more obligated to entertain defined benefit claim. Despite this there are many health insurers like Aditya Birla Health Insurance, Bajaj Allianz General Insurance and Edelweiss General Insurance who have come forward and clarified that they are still providing cover for coronavirus. This means the future course of coronavirus will decide the level of challenge health insurers will be facing. Since, it has been announced that if there are any claims due to coronavirus, wherein the case is of hospitalisation for at least 24 hours, it will be covered under a health policy as per the contract. If things go out of control or claims grow exponentially, this may impact insurance space hugely. However, with recent announcement of coronavirus as a notified disaster, the cost for managing COVID-19 infected patients would be at the rates fixed by the state government / recent guidelines of GI Council stating the amendments on Proposed Hospital Service Charges vide their Circular dated 20.06.2020, which may come as having cushioning effect for everyone. This may also be an opportunity for the health insurance industry to prove its metal and win the trust of the prospective customers. In a high contagion scenario, the ability of all insurers to speedily assess claims, detect fraudulent claims and disburse genuine payments under the policies will go a long way in tempering the pandemic’s impact. We could expect a lot of co-operation between the IRDAI, insurers, network hospitals and intermediaries for standardization in COVID-19 claim settlements to meet these critical needs of the country. This event is likely to reinforce the need for a health cover which could be a positive note for Indian health insurance industry.
BE CAREFUL ABOUT THE HEALTH INSURANCE FRAUD:
The most common perpetrators of healthcare insurance fraud are health care providers. One reason for this is that the historically prevailing attitude in the medical profession is one of “fidelity to patients”. This incentive can lead to fraudulent practices such as billing insurers for treatments that are not covered by the patient’s insurance policy. To do this, physicians often bill for a different service, which is covered by the policy, than that which was rendered. Another motivation for insurance fraud in the healthcare industry, just as in all other types of insurance fraud, is a desire for financial gain. Public healthcare programs such as Medicare and Medicaid are especially conducive to fraudulent activities, as they are often run on a free-for-structure. Physicians use several fraudulent techniques to achieve this end. These can include “up-coding” or “upgrading,” which involve billing for more expensive treatments than those actually provided; providing and subsequently billing for treatments that are not medically necessary; scheduling extra visits for patients; referring patients to another physician when no further treatment is actually necessary; and “ganging,” or billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.
One of the main reasons that medical fraud is such a prevalent practice is that nearly all of the parties involved find it favorable in some way. Many physicians see it as necessary to provide quality care for their patients. Many patients, although disapproving of the ideal of fraud, are sometimes more willing to accept it when it affects their own medical care. Program administrato rs are often lenient on the issue of insurance fraud, as they want to maximize the services of their providers.
Introduction of Corona Kavach INSURANCE POLICY – SPECIAL DRIVE BY GENERAL INSURANCE INDUSTRY:
As mandated by the Insurance Regulatory and Development Authority of India (IRDAI), standalone health and general insurance companies started offering the standard indemnity health insurance policy—Corona Kavach. While some insurers currently don’t pay for the cost of personal protective equipment (PPEs) and other hygiene-related consumables, which form a chunk of the hospital bills, the Corona Kavach will pay for PPEs, gloves, masks and other similar expenses. Though the features and wordings of the policy are the same across insurers, BUT there’s a difference in the way insurers have priced it.
The minimum entry age for the policy shall be 18 years and the maximum 65. Dependent children shall be covered from the age of three months to 25 years. It also offers the family floater option. Most insurers could offer a discount on this. The tenures could be 3.5, 6.5 or 9.5 months, including the 15-day waiting period, and insurance rules such as lifelong renewability, migration and portability shall not be applicable. The minimum sum insured is ₹50,000, which can be increased in multiples of ₹50,000, up to ₹5 lakh.
Any co-morbid condition triggered due to covid-19 shall be covered. However, a few insurers may apply loading on premiums for individuals with co-morbidities. For instance, New India Assurance shall apply a 30% loading on premiums for individuals with diabetes, hypertension, asthma, lung fibrosis, cancer and so on.
The policy has no sub-limits on room rent, which is an advantage. Capping of room rent usually results in increased out-of-pocket expenditure. It also has a bearing on other associated costs such as nursing and doctors’ fees. The policy has no sub-limits on room rent, which is an advantage. Capping of room rent usually results in increased out-of-pocket expenditure. It also has a bearing on other associated costs such as nursing and doctors’ fees.
The policy comes with an optional hospital daily cash cover in which the insurer will pay up to 0.5% of the sum insured for every 24 hours of hospitalization up to 15 days. The base policy will pay for hospitalization expenses incurred for the treatment of covid-19 on a positive diagnosis from a government-approved diagnostic centre.
The policy covers costs of at-home treatment, provided the medical practitioner advises home treatment and there is a continuous active line of treatment, which requires monitoring by a medical practitioner.
The premiums shared by insurers across age groups (as reported by media) that are found that Future Generali India Insurance Co. Ltd and some cases of public sector insurers such as Oriental Insurance Co. Ltd and United India Insurance Co. have priced it at the lower end of the spectrum, whereas Go Digit General Insurance Ltd is at the higher end.
For an individual between ages 31 and 35 years, for a sum insured of ₹3 lakh and tenure of 9.5 months, Future Generali has priced the base product at ₹664, plus taxes, whereas Go Digit has priced it at ₹8,085, plus taxes. Oriental and United India have priced it at ₹932 and ₹1,192, respectively, plus taxes.
IRDAI has mandated a 5% discount for all healthcare workers. A few companies are also offering discounts on the aggregate premium for family floater plans and if the plan is bought online without the involvement of an intermediary. One of the PSU insurers has offered up to 90% discount to add family members. For older age groups, the difference in premium is sharp. For those above 60 years, for a sum insured of ₹3 lakh for one year, Oriental is charging ₹1,864 plus taxes, Future Generali ₹2,552 plus taxes, and Go Digit ₹26,195 plus taxes. If you go for the optional cover, the premium will have to be paid over and above the premium for the base policy. For the same tenure, age and cover, Future Generali is charging ₹100.68 plus taxes for the optional cover, whereas Go Digit is charging ₹1,680 plus taxes.
In general premium rates of some PSU insurers are significantly competitive as compared to those of select private insurers. With benefits being identical, premiums are an important factor to choose an insurer. Most insurers have a wide network of cashless hospitals – but for that PSU Insurer may be better choice. While the policy could work well for the uninsured, if you already have adequate health cover, you could give this product a miss. If you have a ₹10 lakh-plus coverage, then you don’t have to supplement your policy with this Corona Kavach Product.
In general premium rates of some PSU insurers are significantly competitive as compared to those of select private insurers. With benefits being identical, premiums are an important factor to choose an insurer. Most insurers have a wide network of cashless hospitals – but for that PSU Insurer may be better choice. While the policy could work well for the uninsured, if you already have adequate health cover, you could give this product a miss. If you have a ₹10 lakh-plus coverage, then you don’t have to supplement your policy with this Corona Kavach Product.
THE Circular no. Irdai/hlt/misc/cir/189/07/2020 necessitates:
To ensure strict compliance of provision of cashless facility to the Policyholders for treatment of Covid-19 patients.
No denial of cashless facility for treatment of Covid-19 by network hospitals.
Service Level Agreement in terms of Regulation -31 (a) of IRDAI (Health Insurance Regulation, 2016) in between TPAs & Network Hospitals in this direction.
Immediate & good Redressal for grievance relating to complaints arising out such cashless facility provided to Covis-19 patients.
In case of any fault in TPAs/ Network Service in above to be seriously taken by insurer – even blacklisting them.
The impact on insurance customers so far:
As insurers try to grapple with an increased volume of claims and customer queries, they are also facing increasing calls in the press and on social media to help individuals and businesses who suddenly find themselves in dire straits. That is exacerbating the situation, resulting in long wait times for responses and even further customer disgruntlement. Unsurprisingly, that has had a knock on effect on financial service providers across the board and those in the insurance industry are no exception. In some cases insurers have started taking action to protect their businesses which, while sensible, left many consumers in the lurch as airlines failed to cancel flights and governments issued conflicting advice as to whether people should travel or not. Others in the insurance industry meanwhile are being forced into action to customers’ benefit by governments’ emergency responses to the virus.
At the same time insurers’ reputations, never overwhelmingly positive among customers, are being battered yet further as businesses and consumers find that many basic policies do not cover the impacts of a global pandemic and publicly express their dismay. This situation does largely due to customers not fully understand insurance coverage, but that’s partly the fault of the insurers for using legalese and long, complicated terms and conditions. The long and the short of it is that we’ve ended up in an environment where people buy insurance based on which policy is cheapest and, unsurprisingly, cheap policies rarely cover unexpected or unusual events – like global pandemics. They are facing increasing calls…to help individuals and businesses who suddenly find themselves in dire straits definitely it are the Limited exposure for General Insurers.
Speaking on non-life or general insurance, the author expects the impact on claims to be relatively manageable. Most insurers learned the lessons from the SARS outbreak of 2003 and introduced exclusion clauses for communicable diseases and epidemics/pandemics into most non-life products such as business interruption and travel insurance. Business interruption policies usually pay out only if physical damage occurs to an organization’s assets or operations – so coronavirus related claims may not be covered, but there is potential for future disputes on this issue. Travel insurance, meanwhile, may offer cover if a customer is diagnosed with the virus before or during their trip – but not for travel that is cancelled because of the pandemic, unless a customer has taken out premium `any cause’ cover, which very few have. Of course, interest in `premium’ policies could change in our world after COVID-19.
Event cancellations may cause greater losses to insurers as some large events (but certainly not all) have policies that may cover them even for epidemics or pandemics. The largest event taking place this year is the Tokyo Olympics where analysts estimate approximately $2bn of coverage. It is likely that the reinsurance sector will bear some of the brunt here, as insurers claim back the costs of cover from them over a certain threshold. One major global reinsurer, for example, has been quoted as having exposure of over 500 million Euros should all events covered for pandemics are cancelled.
However, there are two potentially big areas to watch for non-life. Firstly, trade credit insurance, covering businesses against debts that cannot be paid by their customers or suppliers. This is an $11bn global market – and if increasing numbers of companies go out of business due to coronavirus impacts, insurers could face rapidly spiraling claims. There are particular concerns that, alongside some big corporate in acutely affected sectors, SMEs in many markets could be hit hard due to supply chain disruption and a crunch in their business levels. The cost of this may very much depend on just how bad the pandemic becomes, the extent to which containment measures affect different kinds of businesses, and how long it lasts.
The second area is workers’ compensation claims. We could see spikes in workers claiming they were not adequately protected by their employers against exposure to the virus brought about by their normal working duties. It is impossible to know at this stage how significant such claims could become. But insurers offering this type of cover to employers may need to brace themselves, depending on how things develop.
Finally, the volatility and falling interest rates within the financial markets will likely impact general insurers from an earnings and solvency perspective.
Market volatility creating difficulties for Life & Retirement Insurers:
Of all insurance segments, it is life insurers who are facing the most difficult challenges. The industry is closely monitoring the potential impacts on mortality rates; however, we expect that life insurers may also feel significant impacts due to what is happening in the financial markets. Because of the long-term assets and liabilities that life insurers hold, market volatility is always challenging for the sector – and we have seen extreme volatility in recent weeks. Major exchanges around the world have experienced some of their worst falls in decades, even if ground has later been made up again. Movements in equities, interest rates and credit spreads create tremendous asset liability management risks for life insurers as yield curves flatten.
Globally, life insurers manage more than $20 trillion in assets and as much as half of this is estimated to be in government bonds. But the yields from these have fallen dramatically – US 10 year bond yields have more than halved since the end of 2019 for example. The crisis also puts pressure on non-Government bonds which may cause credit concerns and may lead to an increase in bond downgrades.
In addition to this, as noted earlier, central banks have been slashing interest rates. We were already in a low interest rate environment – which is always difficult for insurers in general, but especially for life insurers – now rates are heading down even further (possibly below zero in some countries). Legacy businesses or products that are highly sensitive to market variables such as variable and fixed annuities, long-term care insurance and universal life insurance are likely to feel the effects more deeply.
All of these factors can result in solvency ratio challenges. Prior to this COVID-19, much has been said about the industry being well-capitalized and so insurers may be starting from a position of strength as it relates to capital. However, risk-based capital approaches vary widely by country which impacts how reactive the ratios are to current market conditions. For example, the EU’s Solvency II regime is very sensitive to financial market volatility and movements in bond yields and credit spreads. Other capital approaches could be sensitive to bond downgrades. As a result, insurers will need to closely monitor solvency ratios in order to meet economic, regulatory and rating agency capital requirements.
The sector will be hoping that the pandemic blows itself out before long. Otherwise, if market volatility continues and fluctuations persist, they may need to reassess their investment portfolios and exposures to potentially reduced investment earnings as well as protecting capital/security for policyholders and key stakeholders.
IMPACT ON AOG PERILS LIKE Amphan cyclone in West Bengal & Odisha ON 20.05.2020, RECENT DELHI/ ASSAM/ BIHAR FLOOD INCIDENTS on general insurance industry:
All the insurance companies have received over hundreds of claims for damage to property in the aftermath of cyclone ‘Amphan’, which left behind a trail of destruction in West Bengal and Odisha. At least 86 people were killed and lakhs were rendered homeless after the cyclone battered a dozen districts in Bengal, including state capital Kolkata, on May 20, 2020. In Odisha the impact was little bit lesser. After cyclone ‘Amphan’ caused widespread destructions in West Bengal and Odisha, the insured losses from the calamity are estimated around Rs. 1,000 Crores. Lots of AOG Exposures like floods, earthquakes had taken place recently in Delhi, Assam, Bihar, North Eastern States, etc. in India, giving terrific scars on the financial health of all the General Insurers.
Be Cautious about the cost-cutting response:
Clearly, this year could prove to be a difficult one for many insurers given the predictions of the economists, some of which are saying that a “U” shaped or even a “W” shaped recovery pattern may be more likely now (as opposed to “V” shaped). Early questions are starting to emerge around possible recessions around the world. Why? We’ve seen such varying virus containment efforts which dramatically impact consumption levels on a local level and therefore impact speed to recovery. Expectations vary on the long-term impacts; no one can be entirely sure.
While it is tempting for insurers to suspend investment and cut costs in such a challenging financial year, I believe the crisis creates an incentive for them to do the reverse – continue to invest in how they operate and create a more agile, digitally-enabled business. In other words, now more than ever insurers should keep investing forefront in their minds so that they can be prepared for the future.
By this it is meant firstly embracing the flexible and remote working that will be needed across all sectors due to the virus, insurance included. The crisis provides the opportunity for insurers to test and ensure that their businesses have sufficient connectivity to support more staff working off-site and in flexible ways – now, and for the future too.
What this means today is that management teams should be rapidly assessing operational areas with high concentrations of human capital support such as call centers, claims, shared service centers, etc. to determine the impact. Business disruption or resiliency plans are being tested stressed and in some cases derived. This is especially true in areas where there is a lack of digital workflow tools, limited virtual or mobile work station capabilities or unscaled communication technology. These traditional methods are often used for completing moderate to more complex processing activities that require a team approach to resolution. This situation is allowing for a significant shift in the adoption rate of new ways of working, including the supporting technology, which may change the ways organizations are run during post Covit-19 crisis.
Speaking of technology, the crisis could also be the spur to look at moving more systems and applications to the cloud – an area that insurers have lagged other sectors in. With more people working remotely, having systems in the cloud offers much greater bandwidth and capacity than if staff are accessing on-premise servers remotely. This is an opportunity for the insurance industry and could be the catalyst for this movement. Actuarial modeling software, for example, often sits on individuals’ computers, as there are deemed to be security issues with putting it in the cloud. But with today’s cloud services offering enhanced security protocols, perhaps the time has come for more of the industry to make the move.
More broadly, insurance businesses – as other sectors – need to embark on the digital transformation of their organizations, to become more agile, responsive and connected enterprises. Perhaps one legacy of the coronavirus crisis could be that it actually propels more insurers to do that. These are extremely challenging times for individuals, families, businesses and indeed whole societies and economies. The insurance industry has a key role to play in supporting customers and societies through the crisis and the recovery.
WHILE SUMMING UP:
The decade 2020 and this particular year 2020 have begun with a bang. The Corona Virus or the COVID-19 has shaken the entire world- whether it is a developing or developed country or a rich, modern, well conscious and wealthy or a poor, having mostly uneducated clusters of citizen like our nation.
World Health Organization- WHO- has declared the Corona Virus as a Pandemic. (Epidemic is restricted to one community or one country, whereas the Pandemic is spread throughout the world.)
Now the questions arise- What is the role of the Insurance Industry in guiding the existing policyholders and new clients with regard to Corona Virus? As an industry closely linked with the health of the population in general and our policyholders in particular, are we rising to the occasion now guiding the general public about this Virus? What is the part to be played by the Insurance Regulator- Insurance Regulatory and Development Authority of India, in short the IRDAI? In what way, the Government of India can intervene in this matter to help the common public?
Let us look at these situations & The Role of the Government of India at this context. This subject has been taken up first because Insurance is only one of the many numerous steps to be taken up by the Government to come to the rescue of the suffering public, especially the poor and the downtrodden. Findings are –
The Government has announced to provide an Health Insurance of Rs 50 lacs per head for all Doctors, Nurses, Health care workers, ‘Safai Karamcharis’, ward boys, ASHA Workers, Para-medics, Technicians and Specialists and all the Traffic Police personnel for a period of 3 months till June 2020, to be continued if required. Health care workers alone are 22 lakhs people in India.
All the above categories of persons are also covered by Personal Accident Cover of Rs 50 lakhs for this period.
There are 50 lakhs trucks in India but only 4 lac trucks ply daily. These 4 lac drivers and cleaners will be extended this Health Insurance of Rs 50 lakhs per head for 3 months as a short term insurance cover by the Government and the Life Insurance Corporation of India- LIC- and the modalities are being worked out. 19 deaths that took place among these truck drivers and cleaners have created a panic among this section of population and hence this reassuring gesture from the Government.
The Income Tax Department has announced that insurance premiums paid up to June 30, 2020 would be taken as paid on or before March 31 2020 and the eligible IT Rebates would be given for the FY 2019-2020 in the Income Tax Assessments of people.
All Health Insurers have to cover the Coronavirus Pandemic claims including hospital treatments under the Ayushman Bharat, although this was not envisaged at the inception of this Scheme.
The impact on the insurance industry will be unprecedented:
Despite a global pandemic being voted the biggest risk to the industry in a poll of insurance executives in 2013, most insurance companies seem to have taken little action in the interim to prepare for it. Customer perception may be that these firms are large organizations out for themselves, but there are enormous risks to insurance businesses the scale of which we have rarely seen before. Insurers and reinsurers face huge exposure as major events are cancelled — Munich Re has exposure to the Olympic Games in the region of hundreds of millions of Euro to take one example. That would be a big hit for a firm of Munich Re’s size, but for smaller, specialist firms that specialize in event insurance and offer communicable disease cover, the ongoing cancellation of events of all sizes could well see them fail. It is almost certain in the Global Market that we will see insurance businesses fail and quite possibly in significant numbers. We could also see the collapse of individual life and health insurance companies — ratings agency Fitch has already warned that life insurance companies could be particularly hard hit by the combination of falling stock markets and increasing mortality. Paying out on policies will be a huge hit to insurers, and for reinsurers when added to their other exposure. That could put them in serious jeopardy. Additionally, giant, global businesses are failing, with airlines looking to be the earliest casualties and hospitality chains likely to swiftly follow. Firms of this size are more likely to have comprehensive cover, so having to pay out on any policies that do include contagious disease cover will further add to the burden faced by the insurance industry.
Add to that the volumes of payouts on existing travel insurance policies being way out of expected bounds — globally around £275 million is expected to be paid out in COVID19 related claims the majority of which will be for cancellation cover — and the pandemic starts to look incredibly serious for the insurance industry. And as if that wasn’t enough, the investments insurers rely on to give them funds to pay such claims are in freefall.
Finally to sum up, it is almost certain that we will see insurance businesses fail and quite possibly in significant numbers, if the proper coordination amongst the IRDAI, insurers, network hospitals and intermediaries for smoothening the COVID-19 claim settlements to meet the significant needs of the country.
