Keeping in view rising claims ratio and higher re-insurance cost, life insurers are planning an increase in premium in term life insurance being offered beginning April 1, 2021.
As per industry estimates, life insurers are likely to hike the premium rate for providing term life insurance by 10 to 15 percent.
“Term insurance products may have to be increased by 10 to 12 percent based on your location and experience of the insurer,” says Subhendu Kumar Bal, President, IAI and Chief Actuary & Chief Risk Officer, SBI Life Insurance.
For insurers with higher pricing, the incremental pricing may range from 5 to 10 percent. For insurers who have kept pricing low and have not had a favourable experience, incremental premium would be around 20 percent, he says.
On an overall basis, the average increase in premium rates for term life insurance would be in the range of 10 to 15 per cent.
Incidentally, the life insurance industry has seen a shift towards protection business post the pandemic with the share of protection business rising to an average 10 percent from 5 percent about 12-18 months ago. The online term market has grown by 30-40 percent during the last 12-18 months, says Gopal Kumar, an economist and actuary.
Private sector life insurer IndiaFirst Life Insurance has sought approval from the regulator for an increase in policy premium for term plans for the next year due to a higher claims ratio, according to a top company official. Other life insurers have already deployed the price revision in the current year.
However, IndiaFirst Life MD & CEO RM Vishakha refused to divulge any details on it. “We will be able to share it (quantum of price hike) after we get the confirmation from the regulator,” she said.
She said that premiums normally change if there is an adverse claims ratio and there are accumulated losses that are not getting recovered.
“The pandemic has increased the claims ratio (of the company) by almost 30 percent. And it wipes out a lot of earlier profits also because typically the assumptions and the pricing are very finely priced,” she added.
IndiaFirst has not increased its term plan rates since December 2018 while other life insurers have had multiple revisions and upward variations in price points over past few years. “The existing COVID situation however requires us to consider marginally increasing rates while remaining competitive,” she added.
The Insurance Regulatory and Development Authority of India (Irdai) in its annual report 2019-20 said the Covid-19 crisis will impact the insurance industry, forecasting a nearly 3 percentage point slowdown in annual average global premium growth in 2020 and 2021 from the pre-crisis growth trajectory.
In India, term insurance plans have been aggressively priced due to the price-sensitive nature of customers and low penetration rates. “Over the past few years, the life insurance sector was seeing a flurry of changes such as change in the target segment, relaxation of medicals or other underwriting norms and fierce competition leading to downward spiral of term rates. This led to unfavourable outcomes forcing companies to increase term insurance rates,” Bikash Choudhary-Appointed Actuary & Chief Risk Officer-Future Generali India Life Insurance said.
In India, often with a home loan, a term life insurance plan is also bought to safeguard the family against debt. That remains the primary objective.
Life cover linked to home loan is typically a one-time premium payment cover where the sum assured reduces in line with the loan outstanding as a pre-determined fixed interest rate. It is a voluntary group insurance cover taken by Banks or Housing Finance Companies for its loan borrowers.
A term insurance cover is usually a flat cover on an individual basis where the customer can go and buy for itself directly from any insurance company.
“The underwriting norms are stringent and sometimes lives have to go for medicals as well. Further, the premium payment can be regular or for a limited period. Thus, they may not be directly comparable as it depends on many factors including the period of premium payment, period of cover, amount of cover as well as whether cover is level or reducing,” Choudhary from Future Generali Life insurance added.
HDFC Life’s flagship term product Click 2 Protect Life was launched in January 2021, as per the new pricing.
“This product offers multiple innovative features thereby providing all-round protection coverage to our customers,” Vibha Padalkar, MD & CEO, HDFC Life said.
However, ICICI Prudential Life said the company is not looking at any immediate price revision as it already did so last year.
Interestingly, in life insurance mortality tables, women have better longevity (3 years longer) as compared to their male counterparts. So, for instance, a 40-year female will be assumed to have a mortality of that of a male life aged 37 years, all things being equal.
Satyan Jambunathan, Chief Financial Officer, ICICI Prudential Life Insurance says that life insurance companies work on risk-based pricing, and women tend to have longer life expectancies than men, allowing for lower life insurance premiums.
For instance, a 30-year-old non-smoking woman can purchase ICICI Pru iProtect Smart offering a term cover of Rs 1 crore for a tenure of 30 years by paying an annual premium of Rs 12,945. Her male counterpart will have to pay an annual premium of Rs15,900, all other variables remaining unchanged.
Critical illness as an add-on cover
The pandemic has also resulted in increased awareness on the need for term life insurance with a critical illness benefit.
According to Jambunathan, “With Annualised Premium Equivalent (APE) of Rs 7.03 billion, our protection business accounted for about 18 percent of our overall APE in 9M-FY21 compared to 15 percent in FY2020.”
He made it clear that his company doesn’t see any change in our product pricing for now, as the new product launched in July 2020 reflects the revised rates.
(Kumud Das is a Pune-based teacher and freelance journalist. He writes on insurance, banking and subjects of human interest)
