The era of cheap and easy term plans may be over

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Life insurers are expected to increase premiums for term plans as claims rise during the Covid-19 pandemic.

Reinsurers are increasingly strict about underwriting and documentation requirements from clients, said Vighnesh Shahane, managing director and managing director of Ageas Federal Life Insurance. “It won’t be that easy or cheap to get a futures product in India.”

The amount of the hike, he said, will vary depending on the insurer, reinsurer and the volume of business in between.

Revenues and profits of listed life insurers fell in the quarter ended in June as they built more provisions against early claims from the deadliest second wave of Covid-19. ICICI Prudential Life Insurance Co. recorded the largest sequential decline in new business premiums at 50%, followed by SBI Life Insurance Co. and HDFC Life Insurance Co. at 46% and 43%, respectively. The companies have yet to report their profits for the quarter ended in September.

Forward plans are likely to become more expensive for three main reasons:

Higher penetration risks

Since the initial target group for temporary or protection products was the affluent category with better medical facilities, a lower risk was associated with a lower premium, according to Prithvish Uppal, analyst at IDBI Capital Ltd. But as the penetration of protective products increased, lower incomes groups susceptible to higher risk deserve a higher premium, he said.

Cheaper than developed countries

While India has a lower life expectancy, prices have been comparable to those in developed countries where people are living longer on average, according to Uppal. Annual premiums in Hong Kong, with a life expectancy of 84 years, are around 12,000 rupees, about the same as in India where the death age is 69, he said. .

Expenses induced by the Covid

An upsurge in claims from the pandemic, especially Wave 2, has prompted reinsurers to raise rates, according to Mohit Mangal, analyst at Anand Rathi Financial Services Ltd. Rs 960 crore, ”Mangal said. “Thus, the reinsurers had to bear the burden of Rs 640 crore.”

Premiums declined in the 10 years to 2019. But just before the pandemic, reinsurers – companies that offer financial protection to insurance companies – raised prices between 15% and 40%, according to Uppal.

ICICI Prudential Life Insurance passed the full increase on to clients in July 2020, Mangal said. Others don’t.

“HDFC Life and SBI Life have chosen to keep some of this increase on their books while others, in an effort to expand their protection business, have absorbed all of the increase,” Uppal said.

HDFC Life, SBI Life and ICICI Prudential Life declined to answer questions from BloombergQuint, citing the period of silence before their earnings.

Shahane said insurers could make a decision “based on their expectations and forecasts for the future and how the pandemic is likely to unfold.”

According to Uppal, the companies will pass on the increase in reinsurance costs based on their historical mortality experience and will follow a cautious underwriting approach to avoid uncertainties related to the pandemic.

“ICICI Prudential is very likely to continue to pass the entire increase on to customers as a result of its management policy,” he said. “[But] HDFC Life and SBI Life could also follow suit, unlike in the past. “

Unlikely winner: LIC

As private insurers’ term plans get more expensive, Uppal expects one company to gain: state-owned Life Insurance Corp.

The increases will reduce the price differential with LIC. Currently, private companies charge around Rs 10,000 to Rs 15,000 per year for a plan worth Rs 1 crore, while LIC which sells similar policies at Rs 20,000 to 25,000, Uppal said.

“LIC is most likely to benefit from the price increase, as brand recognition will allow it to gain market share in the protection industry. “

Uppal also expects volume growth in the third quarter before reinsurers raise prices by the end of December.


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