Post-COVID-19 insurance industry

 

Market Size and growth

• India is the 11^th largest insurance market and 10^th largest in life insurance total premium.
• Non-life premium collected, as on September 2019 is Rs. 4,10,000 crores.  
• India is expected to gross a business of Rs. 19, 56,920 crores by 2020.
• EY-ASSOCHAM estimates the CGAR growth during 2014-19 to be 12 per cent.
• India accounts for only 2% of total Industry premium and hence a vast potential for growth is available.

Structure of Insurance Industry

The Industry is divided into agency channel and third-party distributors such as corporate agents, brokers, web aggregators, insurance marketing firms and common service centers. In fact, individual agents and banks constitute 87% of the distribution matrix. Investors and startups are also part of this setup.

Why low penetration in India?

General Insurance sector has a shockingly low 0.97% penetration in India in FY19 while life insurance penetration stood at 2.74 per cent. They add up to a paltry 3.71% (Taiwan 20.88%).

The reasons are many and myriad like Illiteracy, low credibility of claims being honored, poor density of distribution outside large cities and complexity of various products and competition.

Concerted efforts of all concerned can only change the mindset. In addition, GOI should mandate coverage in certain areas like employment and assets instead of leaving the choice to the confused individuals’ freewill.

GOI/IRDAI Initiatives in COVID19 times

• 100% FDI is allowed in Insurance industry in India.
•  Launched Ayushman Bharat up to Rs. 5 lakhs benefitting 10 crore families in health sector.
•  They have also launched Fasal Bhima Yojana to benefit 5 crore beneficiaries.
•  Capital requirement has been scaled down from Rs. 5,000 crores to 1,000 crores to promote more players to get in.
•  GOI acted swiftly now to launch PM Garib Kalyan Yojana for health care workers.
•  GOI is planning to cover 8 lakh truck drivers/assistants shortly.                                                                                                                                                Also, extension of renewal dates (Mar 25 to April 14, 2020) for health insurance policies until 21^st April 20, has been ordered by GOI. Similar extensions are allowed for Travel and Life Insurance.

Positive Fallout of COVID-19

• Force majeure, which will normally apply to pandemics, will NOT apply to COVID-19 deaths in India.
• Policy Bazar issues health and Term Life Insurance without medical checkup now.
• Insurance renewal is done through chatbots now.
• 29 Insurance companies sell ‘Arogya Sanjeevani’, a standard product.
• COVID-19 claims as on date number 130 involving Rs. 3 crores. Already paid out by 3 companies.
• Policies are in digital mode nowadays.
• Health Insurance seekers have increased.

How COVID-19 affects the Insurance Industry?

Both the long-term and short-term prospects appear bleak. Let us understand that Insurance companies make large scale Investments of the collected money in Equity and Bond markets. Standstill economy has served a serious blow to the yield rates and equity markets that will linger longer pulling the revenues down. Some Investments may be wiped off too.

• Increase in claims costs are a definite possibility. Payouts will be suddenly heavy.
• No demand for Travel Policy cuts the revenue.
• Peak business of January-March (Q4) is wiped out.
• Slump in auto sales since a long time has starved the motor insurance channel.
• Annuity will take a hit as Repo is lowered.
• Lockdown has made the whole chain of distributors, agents, brokers and financial advisors immobile and we know that Insurance relies heavily on personal selling.

Final thoughts

• The comforting factor is the enormous potential awaiting insurers in India.
• 10 mergers happened in 2017 in Insurance Industry and more are on the anvil to better the sustainability.
• Aggressive movement to digital mode should cut procedures and cost.
• Innovation and more customization should happen to capture the imagination of the customer. 

Some are already on the happening side as under:

• Airtel joins hands with BartiAxa Life for a new product (Prepaid plus Insurance bundle).                                                                                                        
•  Flipkart joins hands with BajajAllianze for Mobile Insurance.                                                                                                                                                     
•  Cyber Insurance Policy by HDFC Ergo.                                                                                                                                                                                            
•   Au Small Finance Bank covering Student SB accounts with mobile Insurance etc.