Life insurers seek a fix on Covid 3.0 impact

Mumbai: India’s life insurance sector is assessing possibilities of increasing Covid-19 specific provisions in FY22 to protect solvency margins in the event of a likely third wave as the impact of the second incidence exceeded their risk model estimates.A sudden spurt in Covid-19 cases in countries such Israel and the United Kingdom, being seen by experts as a beginning of a possible global third wave, has created uncertainties among insurers on the extent of provisions to be made for a sudden increase in claims burden as seen during the second wave between April and June, according to industry insiders.Some sections of the insurance industry also believe that the third wave of infections in India could also lead to a new round of price hikes for term premiums which have already been increased twice in the last 20 months owing to reinsurance pressures.As per estimates shared by industry sources, India's life insurers settled around 25,000 death claims worth around Rs 1,500 crore in the first quarter of FY22, just on account of coronavirus. This is more than what life insurers had settled in the first 12 months of the pandemic over FY21.According to data compiled by insurance regulator Irda sourced by ET, the insurance industry received 22,205 claims worth Rs 1,644.56 crore Covid-19 death claims in FY21, which amounted to 0.3 per cent of the total premium income of the year. Of these, 21,854 death claims amounting to Rs 1,492.02 crore were settled.“Several companies that have been profitable for decades will be in the red for the first quarter of FY22,” said an industry insider requesting anonymity. “Most insurers were caught by surprise and had to plunge deep into their provisional reserves that they had set aside in FY21. None of the risk models predicted such a sudden increase in morbidity claims as seen in April and May.”This could see several insurers announcing fresh provisional reserves in the first half of FY22 beyond what they have already set aside, the person added. Kotak Life Insurance, for instance, was among the first companies to announce that it expects finances to be in the red for Q1 of FY22.Kotak Mahindra Bank in a statement to the exchanges had said that losses are expected to mount to Rs 250 crore owing to Covid-19 as against a profit of Rs 193 crore in the Q4 of FY21. In the statement, Kotak Bank also said that provisioning requirements to adjust for these losses would depend on the mortality trends going forward. Other insurers are now expected to follow suit.Leading private sector insurers such as ICICI Prudential, HDFC Life and Max Life had all set aside provisions for Covid-19 related claims at the beginning of FY21 as advised by sector regulator as well.84219452According to a source, a potential third wave could also signify more such waves in the future. “A third wave signifies the possibility of ‘n’ waves which is an ominous sign for life insurers,” said the CEO of a life insurer. The executive added that this could force the hands of the insurers to further hike term premium rates again.“At this point, everyone is gauging the situation closely. The lowering of hospitalisation rates in India in June and July is a huge positive,” said another senior executive at a leading life insurer. “Currently another set of price hikes is not on the cards for any insurance company.”In FY21, as per data from the Reserve Bank of India’s Financial Stability Report, the claims paid ratio (provisional) stood at 98.1 per cent for individual claims and 98.6 per cent in the group category in comparison with 96.8 per cent and 97.3 per cent, respectively, for the previous financial year.

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