Subhrajit Mukhopadhyay, Executive Director, Edelweiss Tokio Life Insurance, underlines that against the backdrop of the coronavirus pandemic, which has harmed world economies – both developing and developed alike – the next Budget for the financial year 2021 – 2022 would be widely observed.
Subhrajit Mukhopadhyay, Executive Director, Edelweiss Tokio Life Insurance, underlines that against the backdrop of the coronavirus pandemic, which has harmed world economies – both developing and developed alike – the next Budget for the financial year 2021 – 2022 would be widely observed.
The year 2020 has enhanced the prominence of social security and financial protection. With the increasing cost burden of Covid 19 healthcare being felt across states, people have understood the criticality of financially planning for such unforeseen situations. Consequently, life insurance has become among the sought-after instruments for managing individual well-being and facilitating socio-economic welfare.
Rising to the need of the hour, the insurance industry has assiduously supported its policyholders and first-time purchasers, despite the diversity of hurdles and a challenging economic environment in the last year.
From suitably required income plans to an insurance solution exclusively for Covid 19, the industry has innovated to accommodate the growing customer needs.
This epidemic is expected to leave a lasting influence on insurance demand as more families seek financial protection in the medium term. The forthcoming Budget is likely to follow this approach, with the government focusing a more significant emphasis on protecting lives and livelihood.
Various elements might be considered part of the Budget roadmap since the Covid 19 pandemic has heightened the demand for convenient insurance access.
Rationalization of GST Rate:
Since financial protection has grown more vital than ever, the government may consider reducing the GST rate applicable on insurance from 18 percent currently to 12 percent or even lower. A reduced GST rate could further increase the demand for insurance, resulting in improved insurance penetration.
Low insurance penetration in focus:
What has surfaced as a disturbing truth is the low life insurance penetration in India. Among the lowest in the world, India’s insurance penetration is at only 3.7 percent, far lower than the world average of roughly 6 percent. While the government has brought more people into the fold of insurance through various public programmes, India remains a rarely penetrated country. Given the context of low penetration and an increased need for insurance amid a pandemic, the government might incentivize insurance purchase, especially for first-time purchasers and women.
Annuity:
Annuity caters to a crucial requirement of a pensioner, for a life-long pension at a constant, fixed rate. Annuities also protect from the perspective of living longer (i.e. outliving one’s corpus) by providing a consistent flow of income throughout one’s lifetime, purchased instead of a single lump-sum amount.
The life insurance sector can drive GDP growth:
India’s infrastructure sector is poised for a significant rise and requires a considerable investment to support that growth. With their long-term assets, life insurance corporations can help stimulate this industry, and subsequently, the country’s GDP growth. The forthcoming Budget should look at promoting investments into Life Insurance products to promote infrastructure and overall development of the country. The rise in term insurance costs might range between 10 percent and 15 percent. Many reinsurers have already upped their premium rates at the start of 2021, and the rest are expected to follow suit by April 2021.
If you are considering acquiring a term insurance plan, you should get it by March 31 as costs are projected to increase in the new Financial Year commencing from April 1, 2021. According to PolicyX Founder and CEO Naval Goel, 20 percent in life cover rates is projected in the following Financial Year. Goel told FE Online that the proportion might fluctuate from firm to company and their strategies. Other aspects such as gender, age group, income, and others will also affect the life cover costs premium.
Dhirendra Mahyavanshi, Co-Founder, Turtlemint, stated increasing claim incidence in 2020 due to COVID and increased comorbidities among individuals has led reinsurers to modify their rates. With the surge in mortality risks, reinsurers have been obliged to increase their premium rates on pure protection insurance plans. Since life insurance firms get their policies reinsured, the hike in premium by the reinsurers has also put tremendous pressure on the life insurers. Thus, term life cover prices are likely to increase in Financial Year 2022.
The Turtlemint co-founder noted that the increase in term insurance costs could range between 10 percent and 15 percent. Many reinsurers have already upped their premium rates at the start of 2021, and the rest are expected to follow suit by April 2021.
“Last year, the insurance firms had hiked their introductory term insurance rates by 25 percent to 30 percent following a high claim volume. They could not sustain at the rate at which they had operated since the mortality risk had gone up. Now, as reinsurers have altered their rates, life insurance firms are likely to increase the term insurance premiums again as they find it difficult to underwrite lives at existing premium rates. This will lead to a spike in Term Insurance premium again in 2021 of roughly 10-15 percent in the coming months, and can potentially go up to a maximum of 40 percent,” Mahyavanshi told FE Online.
Akshay Dhand, the Appointed Actuary at Canara HSBC Oriental Bank Of Commerce Life Insurance, said that the term rates have grown much cheaper throughout the years owing to fierce competition between insurers and pressure from web aggregators and other insurance intermediaries.
“However, as the client base for these items increased, there has been a decline in the natural mortality rate of these products versus what they were priced at. This drove the reinsurers, who were holding the bulk of the risk under these contracts, to raise rates at the beginning of the last year. However, several corporations had not changed their rates or had partially increased their paces as they observed the market’s reaction.
Nevertheless, it was evident that these corporations would have had to hike their rates at some moment, which we are going to experience in the following year. In addition, the experience has further deteriorated over the last year, and it is anticipated that there will be another reduction of reinsurance premiums this year. How much of that increase will get passed on to customers, and the timing of the same remains to the seen,” Dhand told FE Online.
Akshay Dhand noted that the genuine rise in policy premium would vary from business to company. It will significantly depend upon how competitive their rates were in the first place and how much they have increased their paces over the last year. “For instance, if a corporation writes immaterial volumes of term business, they may not bother adjusting rates at all or only modify rates to a small extent as it offers them the marketing benefit of being cheap without denting their financials.
Similarly, a company might decide that it is strategically essential for them to retain their competitive edge in this space and might continue incurring losses on the term business (by not changing rates or changing to a lesser extent) and cross-subsidizing the same with profits from other lines of businesses that they write,” he added.
Will term life cover premium hike harm existing policyholders?
All the experts concur that there will not be any influence on the existing policyholder. The increased charges will be applied exclusively to the existing policyholders. “No, it will not affect the existing policyholders who already have a term policy or buy before March 31, 2022. The raised premiums apply solely to the new customers who buy term insurance post this financial year. And of course, anybody intending to buy in FY 22 would have to pay the following the new rates,” added Goel.
Mahyavanshi further indicated that the rise in term insurance premiums would solely affect the new subscribers.
This is because term insurance rates do not vary after the policy has been issued unless there has been a change in the terms and conditions like an increase in sum assured, addition/deletion of any supplementary benefit, etc.
“Thus, if a policyholder has an existing term insurance plan, his premium will not get affected by this rise in compensation. The impact of the increased premiums would be seen by new policyholders choosing a new term insurance plan in the financial year 2021-22, especially those who suffer from comorbidities. This is because smokers and others with comorbidities would have a more significant increase in premium than previously with this hike in rates.
Even people from the informal sector or self-employed individuals who do not have official income proofs or income tax return statements to substantiate their income can suffer a hefty spike in premium as a non-standard scenario.
Many insurance companies have already submitted new term insurance plans with the IRDAI (Insurance Regulatory and Development Authority of India) that reflect the increased rates of premiums with certain adjustments in features as well,” Mahyavanshi noted. “We would also introduce the IPO of LIC in 2021-22, for which I am proposing the essential modifications in this session itself,” Finance Minister Nirmala Sitharaman stated in her Budget address.
Finance Minister Nirmala Sitharaman declared that the government will introduce the initial public offer (IPO) of Life Insurance Corporation in 2022. The legislative measures to this effect would be launched in Parliament in the Budget session, the finance minister stated, since the government will need Parliamentary permission to sell the LIC stake.
“We would also bring the IPO of LIC in 2021-22, for which I am introducing the essential modifications in this session itself,” Finance Minister Nirmala Sitharaman stated in her Budget speech. The government has set a divestiture target of ₹ 1.75 lakh crore for FY22. In FY21, the government had budgeted raising ₹ 2.1 lakh crore through divestments but failed to fulfill the target as disinvestments of BPCL and LIC could not be completed within the year.
In a similar event, the finance minister also indicated that the government would complete the sale of BPCL, CONCOR and SCI in FY22. Moreover, the government would privatize two public sector banks and one general insurance firm.
