Economies worldwide are grappling with the pandemic, scrutinizing and implementing new strategies for continuity and tenacity of businesses, Insurance industry being one of the majorly impacted sectors by the regressing economy.
In April 2015, Bill Gates presaged, “If anything kills over a ten million people in the next few decades, it is most likely to be a highly infectious virus rather than a war.” He admonished the world to prepare for its next epidemic. His premonition came to pass in November 2019, when a 55-year old individual from Hubei Province of China became the first case of the Novel Corona virus, which left the entire humanity in the state of crisis. Industries across the globe are facing unprecedented deadlock situation.
The significance of the insurance-economic growth interdependence is growing with the augmenting share of the insurance industry, in the nation’s aggregate finance sector. Insurance sector safeguards the country’s people, assets and businesses. Hence, it is commodious to gauge the insurance penetration, GDP of the country being the benchmark. India being the second worst hit nation by the SARS-Corona Virus, Centre imposed a nationwide lockdown in four phases. Manufacturing factories, restaurants, multiplexes, amusement Parks and educational institutions along with other public establishments were completely shut down, which in turn impacted their revenue. Further, the requisites of survival during a lockdown are eroding people of their financial savings at a time when globally thousands of employees are being laid off. This drop in the policy holders’ real income shunned them from renewing their policies and impacted new businesses in the industry.
While the Virus is showing no signs of wane, the Health Industry can estimate its impact on its near and mid-term future with help of cues of the past quarter data. The estimates have seen 30-40% promising uptakes in health insurances.[i] For the healthcare ecosystem, the surge will play out extremely well for insurers with robust distribution process and convenient access. There has been a radical change in the customer’s mindset. There is a sudden rise in significance of protective investments, especially in the avenues of health and life security. Health insurance has definitely called shotgun when it comes to return-based instruments, be it investing in healthcare finance or bespeak access to quality medical facilities.
The Insurance Regulatory and Development Authority of India (IRDAI) has licensed the insurers to propound short-termed health insurance policies for period ranging between 3 and 11 months, in order to dispel any bewildered claims of applicability of health insurance on COVID-19 cases. These schemes are both individual and group policies. As per the notification dated 23rdJune, 2020, these guidelines are valid until the March 31st, 2021, unless extended further. Life Insurers are permitted to issue benefit based short termed plans while General and Health Insurers are authorized to offer both benefit based and indemnity based short termed insurance policies. With the standby period of not more than 15 days, these policies are of assistance to those who do not have health insurance at all as well as those who are looking for additional cover along with policy holders not looking for renewal.[ii]
Ayushman Bharat Scheme may see substantial number of claims collated with private health insurance companies due to widespread coverage. Since individual isolation is essential for eschewing further community spread, additional burden will have to be borne by the government. The Institute of Actuaries of India (IAI) has estimated that the Indian Health Insurance industry which is at base of INR 51,637 crore will see a percentage increase of 8-15 in its claims ratio at this rate of escalation of cases.
The Health Insurance companies are expected to consider the potential impairment of other assets and functions relevant to the society, using appropriate mitigation strategies and cushion the blow of this pandemic.
Property and Casualty Insurance ventures a safety shield to the country’s businesses’ future unearned profits, asset ownerships against natural disasters and accidents. The number of insurance claims to the General Insurers arising out of the COVID-19 crisis has proliferated with 80,000 claims amounting to INR 1,300 crore by the end of July. According to the Financial Express, non-life insurers received 9,700 claims totalled up to INR 150 crore as on June 6, 2020. On June 19, the figure had touched 18,100 amounting to INR 281 crore. The IRDAI prescribed the general insurance companies to launch a Corona Kavach Policy with a sum insured of Rs.50,000 to 2 Lakhs.[iii]The only solace for the general insurance providers is the premium hike in the fire insurance portfolio as a result of pressure from the reinsurers. The functioning of the Aviation industry has been at a standstill since the inception of lockdown phase 1, resulting in demand for refund owing to the “lay-up” period.
As for Motor Insurance companies, it is a heavy cross to bear in the view of attenuating policy renewals, increase in claims outgo and the economic slowdown. Furthermore, the automobile industry was facing a slowdown prior to COVID-19 outbreak. The motor insurance sector that accounts for over 35% of the total insurance premium collection was going through a tough phase with virtually no growth in the own damage category. As per an estimate by the Lloyd’s, insurance and reinsurance marketplace, which estimates the global claims payout to be in the range of USD 107 billion in 2020 alone, with a caveat that it might increase in case the global lockdowns extend to the third quarter. Lack of purchase of new vehicles due to the lack of feet on the street is anticipated and hence fewer claims arising out of accidents on existing policies are expected. In case of property insurance claims, the 30-day non-occupation clause is likely to become the source of dispute in cases. Contentions arising out of Business Interruption Insurances and Professional Indemnity over interpretations are expected.[iv]
By the passing of FY20, the life insurance industry has witnessed a growth of 3.9 percent in individual new businesses and 34.5 percent in the group new businesses. The adverse effect of COVID-19 will be seen in the segment of premium collection and policy renewals due to reduction in the people’s disposable income. In the long run, the sector is envisioned to profit due to increased demand for security plans owing to the pandemic as well as the implementation of the new tax regime, which is more alluring than the traditional savings plan.[v]
In case of term insurances, Pure Life insurance is anticipated to see increased interest owing to its vast online market, however, the paucity of funds with the people will result in a temporary slump. Moreover people are reluctant to appear for medical tests for higher coverage. The study by IAI has modeled the deaths in the country by Corona. The deaths as on June 30 from the lockdown cease case to worst case scenario was from 20,346 to 37,587 with 11,604 as the chief estimate. This undoubtedly puts strain on the life insurance claims, both in terms of dispensation and amount.
In a less financially literate nation like India, the face-to-face interaction between an agent and a customer is incomparable. For the policyholders, self-service portals have proven to be game changing owing to its expedient and plain sailing method of connect and interaction. These features are intuitive and have a responsive design approach which can be conveniently accessed through a web browser or mobile applications.[vi] Moreover, as users get wonted to this method, premium payments, claims and other customer requests are likely to increase soon. Insurers will have to boost their call centre operations to keep In line with the rising number of claim calls. This means utilising contemporary solutions such as Whatsapp based responses, Interactive voice responses, AI powered chatbots, and others. The companies will have to invest substantial sums on cyber-risk management as well. The abrupt transfiguration to digital platform is an impediment hence greater adherence to security protocols and stringent use of cyber security technologies is essential.
The current situation has triggered the companies to engage digitally and digitize delivery for the Insurance industry, the relocation of customers from physical to digital platforms, the social and behavioral patterns further turning towards a more virtual model will boost this growth.[vii] Digital payment mechanisms, Digital distribution schemes, Digital underwriting processes or filing claims, among others are the significant facets the companies will have to ameliorate at. The Insurance companies will be seen jostling for a better user centric distribution channel, the material factor being the customer’s degree of convenience to buy policy online. The role of specialists such as Acko and Godigit, along with emergence of next-gen digital healthcare financing distribution companies like vital, Plum, Onsurity, Toffee, Kenko, are looking forward to offering policyholders the plans that are far beyond just vanilla insurance schemes along with focusing on their wellness needs.
As a result of this precipitous turbulence, the insurance companies will now reckon with pandemics and environment caused hindrances while considering their operational risks. What is inscrutable is how long the pandemic shall last and its impact and whether it will truly transform the industry for good. What remains to be seen is whether the insurance companies will successfully retain and capitalize the customer’s short lived attention span whilst driving a permanent change in their buying patterns. Will Insurance companies emanate from this crisis as more trusted or less trusted?