Introduction:
The insurance industry’s goal is to safeguard a country’s citizens, assets, and enterprises. As a result, the insurance industry has always been inextricably tied to a country’s economic performance and asset ownership. Life insurance protects people’s lives and future incomes, and it has a direct relationship with people’s earnings, company performance, and net worth. Assets, enterprises, and their value, as well as overall economic activity, are all protected by general insurance. As a result, a common method of determining insurance penetration is to compare it to a country’s GDP. There are 57 insurance firms in India’s insurance business. There are 24 life insurance companies and 34 non-life insurance companies. Life Insurance Corporation (LIC) is the only public corporation among life insurers. In the non-life insurance industry, there are six public sector insurers. Aside from this, the General Insurance Corporation of India is the only national re-insurer (GIC Re).
Agents (individual and corporate), brokers, surveyors, and third-party administrators handling health insurance claims are among the other stakeholders in the Indian insurance sector.[1] Aside from the insurance industry, the virus has had an indirect impact on a variety of sectors. The lockdown in India’s main cities has forced the closure of public enterprises like restaurants, amusement parks, and movie theatres, affecting their income. These businesses require immediate government assistance, and the current crisis may result in decreased renewals of employee benefits and life and accident insurance policies. Furthermore, before the COVID-19 outbreak, the vehicle sector was experiencing a downturn, and the motor insurance segment, which accounts for approximately 35 percent of total insurance premium collection, was going through a hard patch, with almost no increase in the personal damage category. The epidemic and lockdown might have a big influence on the automotive insurance business, which is one of the general insurance industry’s largest income streams.
Impact on the Healthcare Industry
Private health insurance policies cover just 18 percent of the population in urban areas and slightly more than 14 percent in rural regions, making India a historically underfunded country[2]. Although Ayushman Bharat, which aimed to cover the poor and vulnerable, has helped to close the gap, the majority of India remains uninsured when it comes to health. Health insurance firms are facing a variety of issues as a result of the broad COVID-19 epidemic, and they expect an impact in the following areas. The IRDAI has advised insurers[3] to accept COVID-19-related claims under active health insurance plans, to clarify any general misunderstandings about the applicability of health insurance policies to cases of COVID-19. Because the risk of COVID-19 is not currently priced in inactive plans, claims addressed outside of government facilities may place an extra strain on insurers’ books. Beyond COVID-19, a widespread pandemic might result in a considerable rise in claims for health insurance companies (both incurred but not reported [IBNR] and incurred but not adequately reported [IBNER]).
COVID-19 has been found in certain studies to hurt patients with co-morbidities such as diabetes, renal illness, and other chronic diseases[4], and that extending such co-morbidities can result in a long trail of non-Covid-19 chronic claims for a longer duration beyond COVID-19. Currently, health insurance firms have sufficient capital, which, when combined with reinsurance, would provide a sufficient cushion for the insurer to cover COVID-19 claims. Overall, the impact on health insurance firms will be determined by their risk mitigation strategy. If the pandemic lasts for a long time, it will be classified as a severe natural disaster, and health insurers with little capital may struggle to cover claims unless effective risk transfers and equitable reinsurance systems are devised. Because of its comprehensive coverage, the Ayushman Bharat plan may receive a higher number of claims than commercial health insurance firms. The expense of establishing isolation wards may not have been incorporated into this concept. Given the need of keeping hospitalized patients isolated to avoid further community spread, this cost will be passed on to the government. Many insurers are operating the plan under a PPP agreement with the government, and their financials will need to be recalculated. The IRDAI has urged insurance firms to extend the grace or delay period in case of policy lapse or renewal by 30 days because of the country-wide business interruption caused by the epidemic[5]. Insurance firms may face acute liquidity issues as a result of this.
Impact on the General Insurance Industry
General insurance, often known as property and casualty insurance, protects a country’s GDP by insuring assets and enterprises against natural catastrophes and unintentional damage, as well as obligations and potential unearned earnings. General insurance normally covers all organized industrial activities and workers in the organized sector in India, where insurance coverage is quite low. However, during the last several years, a large number of individuals and assets from the unorganized sector have entered the net.
Vehicle Insurance[6]
In 2019–2020, the whole automobile industry was already experiencing a downturn. Because new car sales account for a large number of premiums, the shutdown and near halt in commerce might exacerbate the issue. The following are some of the challenges that the automobile insurance sector faces:
- One of the most significant issues is the inability to acquire new automobiles. Normally, this would be offset by raising the net coverage of existing cars, the great majority of which are no longer covered by insurance by the third and fourth years. However, considering the scarcity of distribution foot on the street, this would be problematic.
- The lockout will have an impact on claim surveying since surveyors will be unable to go out and inspect automobile damage, either at all or on time. Because independent surveyors are required to conduct surveys beyond a specific predicted claim amount (INR 50,000 previously, but now risen to INR 75,000), their unavailability during the lockout will be an issue.
- However, very few vehicles have been on the road since the lockdown began. As a result, few accidents are foreseen, leading to a low number of claims on current policies.
- As a result, since the lockdown began in March 2020, the portfolio is predicted to make a short-term profit, and year-end numbers are likely to indicate a drop in claims owing to less vehicle mobility in the last fortnight of March 2020.
Property Insurance[7]
One of the primary goals of this sort of insurance is to protect property, both commercial and residential, and it also includes a variety of other coverages. People in India often purchase standard fire and special perils (SFSP) insurance, which covers natural catastrophes such as fire, earthquake, and flood, among other things. However, pandemic coverage must be purchased separately (which only a small percentage of customers do), and business interruption is usually triggered only by the risk of property loss. While the great majority of homes in India are under or uninsured, for those that are insured but have been abandoned owing to the lockdown as residents have relocated, the 30-day non-occupation provision in a standard home insurance policy may apply in the event of a claim. In the event of home fire claims, evacuation during the lockdown may be a problem because hotels and other locations may be closed, causing complications with plans that cover this. In difficult circumstances, disputes about depreciation and reconstruction value vs. market value of the property might also rise.
Professional Indemnity[8]
Liability for failure to complete responsibilities on time may be perceived, and the force majeure clause may become a point of conflict. Given India’s low insurance coverage, the expansion of the service sector should result in considerably more professional services being covered by liability insurance. Large firms are now more likely to purchase liability insurance, therefore retailization is important for both insurance penetration and the development of professional services that meet global standards.
Personal Accident Insurance[9]
Due to a lack of activity and movement, fewer claims are projected, as well as reduced policy renewals. This is a category with clearly low penetration, and insurance firms would do well to concentrate and strive to build a business here because it is not reliant on underlying economic activity.
Agriculture Insurance[10]
Since the government opened this market up a few years ago, agricultural insurance has gained a lot of popularity. It currently accounts for 20% of the overall business, but it is a seasonal component. The Kharif season is approaching, so if regular business resumes before then, the impact will be modest. If logistical challenges and limits persist, the whole farm industry, which is underinsured, may suffer. Agriculture in India is labor-intensive, therefore harvesting and logistics may be problematic in the case of reverse movement of daily wage workers. However, disagreements are possible, and numerous losses owing to crop wasting due to transportation cannot be ruled out.
Impact on the Life Insurance Industry
Pure-risk term plans, investment-linked policies, and savings policies with guaranteed/semi-guaranteed long-term returns are common in the life insurance sector. There will be an impact across the board, but the causes for each area will be different.
Term Insurance[11]
Whenever there is a crisis, people rush to expand their coverage. Pure life covers should see increasing interest, and given that the market is mostly online, demand should rise. However, because people’s monetary positions are uncertain, they may be hesitant to acquire a bigger insurance policy. Furthermore, better coverage entails medical examinations, which individuals will be hesitant to do. As a result, a temporary drop in sales activity is expected.
Long-Term Savings Insurance[12]
Long-term assurances will appear appealing, but insurers will be limited in their ability to promote them as interest rates fall. Furthermore, consumers may begin to value liquidity, putting pressure on long-term pension arrangements. The general inclination for these long-term items may drop as commutation increases.
Conclusion
While diminished cash flows as a result of COVID-19’s financial effect may dissuade insurance firms from investing heavily, there are several sectors where they might contemplate doing so. Analyzing relevant data in collaboration with healthcare firms and medico-legal specialists to better comprehend the projected insured loss due to COVID-19 on all fronts. The knowledge gathered from such a procedure may likely aid in lowering risk exposure and identifying new chances and methods for success shortly. To prevent the COVID-19 situation from spreading further, insurance firms might reach out to their existing consumers proactively through ongoing digital advertising. Because the connection is transactional, customers seldom use mobile applications built by insurance firms. Companies may use COVID-19 to create campaigns and give relevant information to their consumers to sustain connections and reach.
References:
[1] Indian Insurance Industry Overview & Market Development Analysis, (Oct 27, 2021, 9:00 AM), https://www.ibef.org/industry/insurance-sector-india.aspx
[2] Insurance, (Oct 27, 2021, 1:00 PM), https://www.ibef.org/download/insurance-jan-2019.pdf.
[3] Circular Ref. No.IRDAI/HLT/REG/CIR/054/03/2020.
[4] Comorbidity and its impact on 1590 patients with Covid-19 in China: A Nationwide Analysis, (Oct 28, 2021, 12:00 PM), https://erj.ersjournals.com/content/early/2020/03/17/13993003.00547-2020.
[5] IRDAI press release dated 23-03-2020.
[6] IMPACT OF COVID-19 IN THE MOTOR INSURANCE INDUSTRY IN INDIA, (Oct 28, 2021, 1:00 PM), https://www.shriramgi.com/news-events/impact-of-covid-19-in-the-motor-insurance-industry-in-india/.
[7] Ghosh, Amlan and Mukherjee, Abhijit, COVID-19 and Property-Liability Insurance in India: Impact and Prospect, (Oct 28, 2021, 2:00 PM), https://Mpra.ub.uni-muenchen.de/103357/1/MPRA_paper_103357.pdf.
[8] Ash Patel, PROFESSIONAL INDEMNITY INSURANCE, COVID-19 AND THE REGULATORY EXPECTATION, (Oct 28, 2021, 5:00 PM), https://insight.rwabusiness.com/blog/posts/2021/february/professional-indemnity-insurance-covid-19-and-the-regulatory-expectation/.
[9] Kamalji Sahay, Embedded Value: Covid-19 not covered by accident insurance, (Oct 28, 2021, 6:00 PM), https://www.financialexpress.com/money/insurance/embedded-value-covid-19-not-covered-by-accident-insurance/1903668/.
[10] Various Authors, Impact of COVID-19 on the Indian agricultural system: A 10-point strategy for post-pandemic recovery, (Oct 29, 2021, 10:00 AM), https://journals.sagepub.com/doi/full/10.1177/0030727021989060.
[11] Vaidyanathan Ramani, COVID-19 impact: Here’s why insurance may never be the same again, (Oct 29, 2021, 12:00 PM), https://indianexpress.com/article/business/covid-19-impact-heres-why-insurance-may-never-be-the-same-again-6581731/
[12] Supra 11
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