India Life Insurance Disrupted By Covid-19

Social distancing norms in the month of March when a lot of people end up buying new insurance policies to save tax and the announcement of the new tax regime earlier in the year which does away with Section 80C deductions seem to have hit sales of life plans.

New business premium for life insurance companies tanked 32% in March to ₹25,409.30 crore compared with ₹37,459.36 crore in March 2019, according to data published by the Insurance Regulatory and Development Authority of India (Irdai). Life Insurance Corp. of India (LIC), which has the largest market share of nearly 76% (in terms of number of policies), reported a dip of 31% in new premium income in March compared to the same month last year. Among private insurers, Aviva Life Insurance (-80.18%), Pramerica Life (-73.1%) and Future Generali Life (-62.24%) were the worst hit.

However, For the financial year, the new business premium for life insurance companies grew at 26.60%.

The pandemic effect - The nationwide lockdown has had huge ramifications for the sector. March is an important month for the life insurance industry. A large number of fresh policies are sold in March, before the financial year-end, for tax-saving purposes. Most of the sale is still driven by physical interaction but starting early March, social distancing had begun. As a result, business activity took a hit. 

Moreover, in the wake of the covid-19 crisis, mobilization of savings could take a hit in the near future. For the life insurance sector that largely sells savings products (bundled policies), a drop in sales could spell a tough time to channelize household money into insurance products.

The industry is expected to move into protection and guaranteed savings products. The liquidity requirement is always a factor since the product is meant for the long term. Under the current circumstances, decision making may get postponed until there is further clarity on cash flows. There will be a higher appreciation for insurance as risk protection.

New tax regime - The announcement of the new tax regime also seems to have hit the sales. Though the new regime is applicable from FY21, individuals may not want to get into long-term commitments if they don’t intend to avail tax deduction from next year.

Growth of new business premium of life insurers in December was up 37.5% compared to the same month in the previous year. However, growth started decelerating in January (18%) and February (1.8%) and entered the negative territory in March. 

It was a double whammy. The new tax regime as well as the pandemic has a role to play. For life insurers, most amount of business happens during the last week of March but due to the lockdown, bancassurance and agency-driven businesses took a hit. Had covid-19 not paralyzed the economy, the growth wouldn’t have fallen so drastically.

Once the lockdown is lifted, the way insurance is sold will come under stress. Limited policyholder engagement activities due to social distancing norms, new business may continue to be low in the near future. 

There is a possibility that policyholders could gravitate towards products that offer fixed returns and have a simpler structure. Life insurance companies may have to look at such product structures aggressively.

The life insurance industry will also have to be more proactive about digital engagement.