How the Corona pandemic has impacted the Indian insurance sector?

Let us take a look below at the impact of the COVID crisis on individual insurance sectors and how the future currently looks for each of them.

November 09, 2020 10:21 IST | India Infoline News Service
COVID-19 which began as a health crisis has now taken over as a financial one. With the global economy crashing and multiple sectors taking a major financial hit, the insurance industry has become a vital part of the new reality of the economy.

India is among the 15 worst COVID-19 affected economies.A McKinsey report suggests that the national GDP reverting to pre-COVID levels can take place as early as the Q-4 of 2020 or as late as the Q-3 of 2022. The outbreak has decreased the global insurance index by22.6% leading to a decline in share prices by25.9%.

Image Source: McKinsey & Company
PwC states in one of its reports that the two productive months for the insurance industry - March for life insurance and April for non-life corporate renewals—have been hit by around30% and 15%, respectively. Let us take a look below at the impact of the COVID crisis on individual insurance sectors and how the future currently looks for each of them.

Impact on individual insurance sectors

While the insurance industry like every other industry has taken a major hit during this pandemic, the future prospects of the industry seem hopeful. Given below is an analysis of challenges and opportunities in the individual insurance sector.

1. General Insurance

Since General Insurance undertakes the valuation of assets and businesses as well as their overall economic activity, it is benchmarked with the GDP of a country to measure the insurance penetration.  Hence, a large proportion of the General Insurance sector is dependent on the performances of industries and individual businesses. So with the lockdown causing a hitch in the business sector, the General Insurance market has subsequently suffered. The overall sector is believed to look up as the global economy stabilizes by 2022.

2. Health Insurance

India traditionally has been an underinsured country when it comes to Health Insurance. However, with Government initiatives such as Ayushman Bharat which aims to insure the poor and vulnerable, the gap has somewhat been bridged but the Private Insurance Schemes have reported covering only18% of the urban population and a little over14% of the rural population. While the demand for health insurance is expected to increase considerably, underwriting thresholds may also go up and thus the negative movement may not be offset.

With the constant increase in the number of cases and the prolonged duration of the crisis, the IRDAI has mandated all general and health insurers to start offering Corona Kavach – an indemnity based health plan and Corona Rakshak – a fixed benefit health insurance – policies to their customers. These policies are meant for covering hospital and medical expenses of COVID 19 patients.

3. Life Insurance

Life insurance primarily protects the livelihoods of people and their future financial security. As a result, life insurance has a direct correlation with the earnings of people, their business performance, and net worth. Since the onset of the pandemic, there has been a rush to increase one’s cover. According to the PwC report, pure life covers should see renewed interest, and thus, should see a boost in demand.

While long-term guarantees will look attractive, insurers will still face constraints as the interest rates plummet with consumers becoming more cautious about their investments, leading to a shaky stock market.

4. Automobile Insurance

The automobile sector, which accounts for over35% of the overall insurance premium collection, was already witnessing a slowdown when the COVID-19 outbreak took place. The pandemic and the resultant lockdown further impacted the automobile industry thus reducing significant revenue for the insurance industry.

This blow turned out to be a major wake-up call for the industry experts who then started foraging for innovative approaches and solutions to keep their customer base engaged and interested. One of the innovative approaches is the “Pay-as-you-drive” model.

With most companies adopting the work-from-home policy, there has happened a drastic reduction in the number of motor vehicles on Indian roads resulting in a nationwide reduction in the number of kilometers driven. Thus, insurance customers who see a reduced usage for their vehicles this year and show a lower chance of availing a high-priced insurance coverage can avail of an insurance policy at a discounted rate under the “pay-as-you-drive” model. This new type of car insurance policy allows car owners to insure their vehicles for only the kilometers that they tend to drive against a general average yearly driving distance.

At a larger scale, the introduction of pay-as-you-use shall prove to be a significant shift in the history of automobile insurance in India as it seeks to become more responsive to the usage (and consequently) needs of the customers.

How the industry is rising up to the challenge?

The insurance industry rides on the back of other industries. Hence, unless the overall economy bounces back or the insurance industry finds business in hitherto uncovered areas, the industry is likely to struggle in maintaining its momentum.

The COVID-19 crisis has given rise to both immediate and potential challenges for the insurance industry in near future.

Insurance companies are taking required measures to ensure a smooth transition of the industry into the post COVID world. From the front offices encouraging their customers to connect digitally to supporting their agents financially in these uncertain times by providing them advance commissions, the insurance industry is set to witness a major transition. The major disruption will be caused by digitization which was already taking place in the insurance industry globally but the onset of the COVID crisis has accelerated the transition process. This would effectively mean that in the coming days the digital customers of the industry can expect only better choices and smoother delivery systems.

While the front offices are changing the way the insurance industry operates and interacts with its customers, the back offices are set to provide several relaxations and updated guidelines for insurers.

The industry deals with the possibility of claims being made on a policy for the next seven years in the case of some risks. Hence, for long-term contracts in life and pension, the sustainability of investment returns and margins will have to be recalibrated. Finally, the future of doing business has to be relooked at. While the insurance industry has to plan for long-term consequences, immediate focus should be concentrated on the following aspects:

● Traditionally, the insurance industry has been employee-centric. With the advent of digital disruption of the industry, there will be an impact on its vast employee bases in the foreseeable future. However, despite the switch to digital mode, a vast majority of the business will require one-on-one communication or face-to-face interactions. As a result, companies need to ensure that their agents have access not only to safety equipment in the office but also required data and applications to safely work from home.

● The insurance industry is supposed to help other industries and hence, cannot overlook any risks to its own existence. They must plan for business continuity in the light of future disturbances such as natural disasters, environmental issues, geopolitical crises, and the resulting instability of global regulations.

● The industry must be prepared for reduced cash flows due to the non-payment of premiums or delayed renewals.

● It also needs to carefully monitor decreased yield from the investment portfolio as interest rates fall from governmental actions to ease business.

In conclusion, it can be well established that moving ahead the insurance industry must learn from the past and choose solutions with a preference for a pragmatic and fast approach rather than looking for perfect solutions to meet the future industry challenges. Industry experts should also facilitate building a robust and resilient frame of operations as insurers begin adapting to the new normal.

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