Impact of Covid-19 on Insurance Sector

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Impact of Covid-19 on Insurance Sector

COVID-19 outbreak has impacted almost all industries and sectors across the world, causing widespread concern and increasing economic hardship for consumers, businesses and communities. The insurance sector in particular is likely to contract with growth declining 0.9% in 2020, compared to 8.8% growth recorded in 2019 , said GlobalData a data and analytics company. This might be because as uncertainty prevails over salaries and increasing layoff causing widespread unemployment, there are less takers for new insurance policies. Officials in the insurance industry said insurers had received around 2.07 lakh claims amounting to over Rs 3,300 crore. Insurance companies have settled over 1.30 lakh claims amounting to Rs 1,260 crore as on September 10.

1. Health insurance

The private health insurance schemes, in India covers only 18% of the population in urban areas and a little over 14% in rural areas, this makes our country underinsured. Considering those covered under a policy the no. of claims have significantly increased, causing financial strain to the companies. A pwc report says . “Based on the emerging experience of Covid-19 claims, insurance companies will need to test the hypothesis of the state-wise or district-wise possibility of escalation of claims.”. In future the companies are at a risk of under or overpricing their products, adapting policies to incorporate the risk of Covid 19 will also cause significant increase in costs. In retrospect one of the plus points of Covid-19 is the customer’s increasing interest in health policies, which has leading to a change in trend from a “push” product to a “pull” one.

2. General insurance

General insurance policies cover a wide variety of business and industries namely, travel, automobile, infrastructure and hotels. Due to the strict lockdown measure motor accidents have reduced significantly, subsequently decreasing the motor accident claims. CEO and founder of PolicyX ,Naval Goel, has said “A fall in the sale of new vehicles
directly impacts the growth of new premiums. Overall till June, the industry has seen de-growth in the motor segment by 11%.” The slowdown will continue for the next one quarter and hopes are pinned on the festive season, he added. While motor claims are have declined, business continuity, commercial risk, and health insurance claims
may increase.

3. Life insurance

“There is demand for health insurance products. But we have witnessed lukewarm response in life insurance,” an official from Bharti Axa Life insurance said. With the decreasing confidence of consumer in stock market, the demand for investment linked policies are likely to drop.

Impact on insurance industry


1. Claim pay-out and liquidity

The Ayushman Bharat scheme may see a greater number of claims compared to private health insurance companies due to widespread coverage. This scheme may not have factored in the cost of setting up isolation wards. Given that isolation of hospitalised patients is crucial to prevent further community spread, this cost will create an additional burden which has to be borne by the government. Many insurers are running the scheme with a PPP arrangement with the government and they will have to recalibrate their financials. Also, in view of the country-wide business disruption owing to the pandemic, the IRDAI has advised insurance companies to extend the grace or delay period by 30 days in case of policy lapse or renewal. This might pose some immediate liquidity challenges for insurance companies.

2. Product development

Several insurance companies have launched COVID-19 insurance products in March 2020.These products tend to be short term and carry fixed benefits, covering a fixed amount in excess of the hospitalisation schemes. The IRDA Sandbox has been useful at this time as many companies had filed and obtained approvals for risk cover in special situations.

3. Reserves requirement

The government has taken actions towards reducing bond interest and repo rates, which will lead to challenges for insurers in terms maintaining higher reserves (higher for a life insurer compared to a health insurer), liquidity risk, credit risk, etc. In view of these challenges, the regulator may have to provide some.

Changes in insurance industry due to Covid-19


1. Corona specific health insurance products

On the directions of IRDAI, general and health insurers have started offering two standard products – the Corona Kavach – an indemnity-based health plan and Corona
Rakshak – a fixed benefit health insurance policy – for covering the treatment costs of COVID-19.

2. Motor insurance products

Since most companies have adopted work-from-home policy due to the ongoing COVID-19 pandemic, there has been a drastic nationwide reduction in the number of kilometres we drive. The new type of car insurance policy, launched by different insurers, allows car owners to insure their vehicles for kilometres they tend to drive instead of the average that everyone is supposed to drive for, in a full year.

3. Insurance through telemedical

While taking health insurance policy through telemedical assessment, one will be required to make a declaration about their health condition on a call with a doctor appointed by the insurer who will ask simple questions regarding one’s health conditions as well as lifestyle habits. Under this method, one can buy a Health Insurance cover of up to Rs 1 crore. On the other hand, under life insurance, under the telemedical setup, a cover of up to Rs 2 crore can now be bought. The telemedical process is completely regulated by the IRDAI and is reliable from the customer’s point of view.

4. Digital transformation in insurance sector

While the recent engagement of insurers on digital platforms through apps and social media has allowed them to reach and engage customers directly, a significant revolution has happened in the background through the adoption of e-KYC and cloud infrastructure that has enabled the insurers to service the customer like never before.

By Aishwarya Nair & Pranav Mittal

    Aishwarya Nair

    Pranav Mittal



Comment (1)
Krishnan Kutty Vijay Kumar / October 27, 2020

Well articulated. Keep it UP!!!!@


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