How has COVID -19 Impacted Life Insurance Companies?

2024-08-02

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Insurance is like an umbrella that protects your family from uncertainties in life. People usually expect the insurance providers to assure your financial security in case of adversity such as death or disease. However, these days the insurance providers are themselves facing uncertainties due to the pandemic situation.

With the outbreak of the COVID-19 pandemic, insurance entities have found themselves stuck in an alarming situation. During the previous year’s lockdown, many insurers had to suddenly make their operations entirely remote. Apart from that, they were trying to address the worries of the awestruck customers who were wary about their life security amid the pandemic.

Many insurers have tried to customize life insurance plans in 2021 by adding COVID-19 cover. Still, there were many other queries such as the continuation of premium payment claims for life, and disability insurance. The situation worsened for the life insurers when the insurance regulators announced their decision to defer the payment of life insurance premiums.

Extended Grace Period for Policy Renewal

The COVID-19 crisis had a major impact on the incomes of individuals, businesses, and the Indian economy. Many people were facing the loss of income due to unemployment or employment lapse. As a result, they were unable to pay their insurance premiums.

1. In order to address the problem of the policyholders, the Insurance Regulatory and Development Authority of India (IRDAI) on 23rd March 2020 had directed the insurance companies to provide a grace period of 30 days to the policyholders for the payment of the renewal premiums.

2. Additionally, the insurers were directed by IRDAI to maintain the continuity of their operations and services to their clients through alternate modes. This includes telephonic conversations and digital contact via online chat.

All these decisions have put a lot of stress on the insurance companies. Currently, the insurers are required to be active and available all the time so that the policyholders do not face any difficulties. The premium payment lapse had already put a significant impact on the businesses of the life insurers, due to which they are facing hindrance in their operations.

Hence, we can see that the insurance industry has suffered a major impact from COVID-19. Nevertheless, the insurers have responded promptly to this crisis. As soon as the Indian economy recovers, these insurers will come across various challenges, which they will turn into opportunities in the long run.

Let’s see how the premium payment gap has put an impact on various aspects of insurance policies.

Impact on the Premium Collections

COVID-19 has deeply impacted the regular operations of many insurance companies in India. As per the reports by IRDAI on life insurance 2021, the number of newly issued policies has declined sharply. This is because the purchasing power of the individual customers has vanished. The insurance premium is the basic income of an insurance company.

1. Over the past 2 years, the premium collection of many prominent insurance companies have fallen drastically.

2. This is because of the Regulator’s decision to provide the grace period for premium payment. In fact, many leading insurance companies in the nation are running in losses.

3. In addition to that, many insurance companies are facing higher withdrawals from the policies by the customers to meet their short-term needs. This has resulted in a slump in the stock market, and a fall in the assets under the management of these companies. Moreover, this has somehow also negatively affected the prospects in certain insurance products like the ULIP.

Impact on Insurable Activity

Life insurance companies are deeply affected due to lack of insurable activity due to the following reasons:

1. Rising unemployment across the nation, leading to the reduced workforce and the financial strain

2. Inability to hire new employees, restricting new business.

3. The negative impact of market volatility on consumer buying behaviour

4. Limited activity in various sectors.

However, Insurers need to carefully monitor and review their portfolio. Accordingly, they can readjust their resources to the lines of business. This also requires customer support and cooperation.

Impact on Claim Settlement

For life insurance companies, modelling the mortality rates is now a challenge. The most problematic thing is that and fear relating to the coronavirus may accelerate the rate of mortality of the policyholders that do not have the disease.

Moreover, the claims on the income protection plan have gradually increased after the lockdown and will further rise, as per the Deloitte report.

1. However, with proper training, the life insurers can successfully re-organize the claims settlement operations. In fact, the Insurers are currently examining their claims classes to track where they are most exposed in both short and medium-to-long terms.

2. Proper review and trend analysis is also required to trace the key scopes for claim fraud.

3. Besides, the Insurers should carefully go through the terms and conditions in policy documents of their most relevant insurance policies in forecasts of increased case volumes and potential legal challenges.

4. Moreover, claims processes will need to wisely utilize the impact of the government support and relaxations to the policyholders for rationalizing the overall claims settlement.

Impact on Future Premiums

Profitability and cash flows of the Life insurers have been deeply impacted due to the statutory relaxation provided by them. Now, they are re-focusing on their expenses with a wider cost agenda. There are possibilities that premiums may be slightly higher for future customers. This will be necessary for the insurers to maintain their profitability and credibility in the market.

Noticing the abovementioned challenges, it is evident that the insurance market needs constant cooperation from the end of the customers in order to cope with the ongoing pandemic crisis.

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