Impact of COVID on the Life Insurance Sector in India

The article 'Impact of COVID on the Life Insurance Sector in India' by Udita Prakash & Mayank Panwar emphasizes the significance of health insurance broadly during the pandemic and analyzes the impact of COVID-19 on the health and life insurance sector of India, covering the challenges faced by health insurance companies.

The COVID-19 pandemic caused a recession in our Indian economy that had never been witnessed before. COVID-19 affected the economy with a contrasting impact on different industries. India's economy faced a long stagnation period due to the country's prolonged lockdown. The worldwide economic downturn resulted in the disruption of demand and supply chains. The COVID-19 pandemic across the nation has impacted the country's overall financial system. The one-of-a-kind and unprecedented nature of this crisis created difficult new circumstances, including economic shutdowns and physical separation. The year 2020 marks a turning point in the insurance industry. Many insurance providers were forced to rethink their business operations, and even customers were worried.

Introduction

Since the year 2000, the insurance sector in India has faced a steady period of rapid expansion, which has led to the insurance industry's current division into its two primary segments: life insurance and non-life insurance. The Insurance Regulatory Development Authority of India is the organization in the authority of both of these markets (IRDAI). The Insurance Regulatory and Development Authority (IRDA) is responsible for regulating and monitoring the whole insurance industry in India. Every single insurer is obligated to behave in accordance with the IRDA's rules and regulations. There are a total of 57 insurance providers operating in India, 24 of which are engaged in life insurance and the remaining 33 in non-life insurance.

Growth rates have fallen abruptly in the life insurance industry, especially during the pandemic's beginning, and supply constraints could be traced as the major factor for that situation. Then, just as they were beginning to stabilize from the preliminary influence of Covid-19, the new wave impacted insurance companies, hard with a plethora of death claims which led them to unprofitability. Such events have all contributed to the industry's overall poor situation. As a result of the shutdown due to COVID-19, insurance firms are increasingly reliant on their digitalization for everything from selling new policies to settling claims.

From the Starting of the second wave, the industry has experienced a pickup in growth, including the improvement of supply-side constraints, showing that the sector is on to record higher growth. In the financial year 2020-21, the life insurance sector reported a premium revenue of 6,28,731 crore, which represents an increase of 9.74 per cent when compared to the premium income of 5,72,910 crore recorded in the previous financial year. The fact that renewal premiums accounted for 55.7% of the total premium received by the life insurers, the new business provided 44.3% of that total. (Economic Survey 2021-22).

In spite of the decline in business caused by the pandemic, the insurance industry has not been significantly impacted and continues to generate money while also providing enormous prospects for expansion in the healthcare and life insurance sectors. Many clients are encouraged to purchase a term plan or one of the many different types of life insurance plans available in order to safeguard themselves and their families against the unpredictability of the future.

Impact of COVID-19 on the Health Insurance Sector in India

The Indian health insurance sector has seen a surge in new policy enrollments. Insurance queries are estimated to have increased by almost about 40% in a particular region of the country. IRDA issued a circular dated 04 Mar 2020 advising that claims for hospitalization, including expenses incurred during quarantine, should be processed as soon as possible. This assumes that the insurer will see an increase in claims for hospitalization costs because of the Covid-19 diagnosis.

Introduction of New and Innovative Products

Many more people are aware of the pandemic now, and 30-40% are making inquiries into health insurance options; a pandemic provides an opportunity for insurers to meet changing customer needs and serves as a proving ground for new product innovation. Several insurers introduced the COVID insurance product in March 2020. Due to this success, other companies followed suit and brought out such products. This type of program lasts for a short period of time, offers customers a relatively small level of reimbursement, and has limited long-term benefits. Per IRDA's directions, the two corona health policies were launched in India-Corona Rakshak and Corona Kavach policies.

These policies covered medical expenses and the cost of PPE kits, gloves, masks, etc., used during the treatment (Policy Bazar, 2020). There are still details surrounding COVID and prognosis, morbidity, as well as costs and patient profiles, that are not available yet, and insurance companies cannot make insurance decisions on who will be a candidate for COVID-19 treatment or who will respond to it based on this information. Until more information becomes available about COVID-19 treatments and prognoses, insurers will not have data on patients' profiles, treatment costs, etc. Data is used to underwrite risk and calculate premiums for disease-specific products. Products are priced and marketed based on this disease-specific data. As a result, businesses run the danger of overcharging or undercharging for their goods.

Reserve Ratio

Due to the global pandemic, the government has done things to keep bond and repo interest and rate-spread risk down, which means life insurers will face challenges with maintaining more important reserve requirements. Due to these challenges, the regulators may have to make some temporary allowances for insurers who are on the edge of insolvency. Since the level of protection and soundness of industry regulations are high, no significant problems exist in the sector. The industry's profits in the long term are tied to portfolio profitability. It can impact both directions. The insurance business would have a downward-spiraling effect on bond prices. To drop in value, insurance companies will write these holdings off if a company has to record a temporary loss for a decrease in assets.

Force majeure insurance

The clarification given by the Finance Ministry said that while COVID-19 was natural, each affected party can use the greater clause of force majeure on a case-by-case basis. It further said that invoking this clause does not absolve the parties from performance obligations but merely suspends those obligations for a specified period of time which is 90 days. If COVID-19 is classified as a force majeure event, legal disputes may arise between contracting parties, policyholders, and insurance companies.

Post-COVID-19 strategies that can improve the performance of health insurance companies: Product development

Evaluate the effects of limiting sales of specific products or adjusting the launch date. Adapt current development and/or recommended or provided validation rates to assess the need to schedule alternative studies of various what-if scenarios to measure sales volume.

Sales management

Experiment with different stress test setups to examine the returns and all associated effects. Understand any problems you may encounter with the company's distribution plan and normal operations. Develop customer-side messaging regarding market activities and support retail group distribution efforts.

Customer service

Establish an action plan in case significant accidents occur. The increased activity can be accommodated by methods or procedures of the side pockets, which is often the case. Think about how to ensure that transactions involving sensitive accounts, loan applications, and customer service work do not use technology as a problem in the future. Consult system documentation so companies can quickly respond to system problems. Decide whether customer service (whether in-house or outsourced) can work remotely and whether companies have other arrangements in place to minimize disruptions.

Conclusion

The insurance sector is vital to a country's economy since it saves lives, boosts investment and personal savings, and employs large numbers of people. Insurers need to come up with more customer-centric, innovative solutions that provide multiple benefits to policyholders in order to address problems like falling demand for new policies, unpaid premiums, rising policy lapse rates, and financial breakdown of claim settlements caused by an increase in the number of deaths.

With the right decisions in place, however, these obstacles may be transformed into opportunities, such as expanding the use of digital services. In light of the existing instability and the consequent significant mortality risks which resulted in increased health awareness and the need for health insurance, Long-term insurance coverage is a product that people frequently buy to protect their family members. Before the Post-Covid-19 era, the insurance industry was the one that suffered a similar downfall compared to other industries; however, it has developed at a faster rate than any other industry.

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