In light of the coronavirus epidemic, which has hurt world economies – both developing and developed – Subhrajit Mukhopadhyay, Executive Director, Edelweiss Tokio Life Insurance, emphasises that the forthcoming Budget for the financial year 2021–2022 would be closely scrutinised.
In light of the coronavirus epidemic, which has hurt world economies – both developing and developed – Subhrajit Mukhopadhyay, Executive Director, Edelweiss Tokio Life Insurance, emphasises that the forthcoming Budget for the financial year 2021–2022 would be closely scrutinised.
The importance of social security and financial safety has grown in the year 2020. People have realised the need of financially prepared for such unanticipated scenarios since the cost of Covid 19 healthcare has increased throughout states. As a result, life insurance has become one of the most popular tools for managing personal well-being and enabling socio-economic well-being.
Despite a variety of obstacles and a hard economic situation in the previous year, the insurance sector has assiduously supported its policyholders and first-time purchases. The industry has developed to meet the expanding client expectations, from adequately necessary income plans to an insurance solution designed specifically for Covid 19. In the longer term, this pandemic is projected to have a long-term impact on insurance demand as more families seek financial protection. This strategy is expected to be followed in the next Budget, with the government placing a greater emphasis on preserving lives and livelihoods. Since the Covid 19 outbreak has heightened the demand for convenient insurance access, a number of items might be considered part of the Budget blueprint.
GST Rate Rationalization:
Because financial security is more important than ever, the government may consider lowering the current 18 per cent GST rate on insurance to 12 per cent or even lower. A lower GST rate might boost insurance demand even further, resulting in higher insurance penetration.
Focus on low insurance penetration:
The low prevalence of life insurance in India has become a sobering reality. India's insurance penetration is among the lowest in the world, at only 3.7 per cent, significantly below the global average of about 6 per cent. Despite the government's efforts to bring more individuals into the insurance fold through different public programmes, India remains a country with a low penetration rate. Given the low insurance penetration and increased need for insurance in the event of a pandemic, the government may consider incentivizing insurance purchase, particularly among first-time buyers and women.
Annuity:
Annuity meets a critical need of a retiree: a lifetime annuity at a fixed rate. Annuities also guard against living longer (i.e. outliving one's assets) by providing a steady stream of income throughout the course of one's life, rather than a single lump-sum payment.
The life insurance industry has the potential to boost GDP growth:
India's infrastructure industry is primed for enormous expansion, which would need massive investment. Life insurance companies, with their long-term assets, can help to stimulate this industry and, as a result, the country's GDP growth. The next Budget should consider encouraging investments in life insurance products to help the country's infrastructure and general growth. The increase in term insurance premiums might be between 10% and 15%. Many reinsurers raised their premium rates at the start of 2021, and the others are likely to do so by April of that year.
If you're thinking about getting term insurance, you should do it by March 31 since costs are expected to rise in the next fiscal year, which begins April 1, 2021. According to PolicyX Founder and CEO Naval Goel, life insurance premiums are expected to increase by 20% in the next Financial Year. According to Goel, the percentage may vary depending on the company and its strategy. Other factors such as gender, age group, income, and others will influence the cost of life insurance premiums.
According to Dhirendra Mahyavanshi, Co-Founder of Turtlemint, reinsurers have modified their rates due to higher claim incidence in 2020 due to COVID and rising comorbidities among patients. Reinsurers have been forced to raise premium prices on pure protection insurance products due to an increase in mortality risks. Because life insurance companies have their policies reinsured, the reinsurers' premium increases have put significant pressure on life insurers. As a result, term life insurance premiums are expected to rise in Fiscal Year 2022.
The rise in term insurance prices might be between 10% and 15%, according to the Turtlemint co-founder. Many reinsurers raised their premium rates at the start of 2021, and the others are likely to do so by April of that year.
"Last year, following a high claim volume, insurance companies raised their initial term insurance prices by 25% to 30%. They couldn't keep operating at the same pace since the mortality risk had increased. Now that reinsurers have changed their rates, life insurance companies are likely to raise term insurance prices again since underwriting lives at current premium rates is tough. This will result in a 10-15% increase in Term Insurance premiums in 2021, with a possible increase of up to 40%," Mahyavanshi told FE Online.
According to Akshay Dhand, the Appointed Actuary of Canara HSBC Oriental Bank Of Commerce Life Insurance, term rates have become significantly lower over the years as a result of severe competition among insurers and pressure from the web aggregators and other insurance intermediaries.
"However, as the market for these goods expanded, the natural death rate of these products decreased in comparison to what they were priced at." As a result, reinsurers, who were responsible for the majority of the risk under these contracts, raised rates at the start of last year. Several companies, on the other hand, had not raised their prices or had very slightly increased them while they watched the market's reaction.
Nonetheless, it was obvious that these firms would have to raise their rates at some point, which we will see in the coming year. Furthermore, during the previous year, the experience has deteriorated even more, and it is expected that reinsurance rates would be reduced again this year. "It is still up in the air how much of that increase will be passed on to customers, and when that will happen," Dhand told FE Online.
According to Akshay Dhand, the true increase in coverage premiums varies from company to company. It will be very dependent on how competitive their prices were in the first place, as well as how much their rates have climbed in the previous year. "For instance, if a firm writes a tiny amount of term business, it may not bother altering rates at all or only to a minor percentage because it gives them the marketing advantage of being inexpensive without hurting their bottom line."
Similar to this, a business may decide that keeping its competitive advantage in this space is strategically important, so it may continue to lose money on the term business (by not changing rates or changing them to a lesser extent) while cross-subsidizing it with profits from other lines of business," he added.
Will the increase in term life insurance premiums hurt existing policyholders?
All of the experts agree that the existing policyholders will be unaffected. Existing policyholders will only be affected by the higher prices. "No, it will not impact current policyholders who have a term insurance or who purchase one before March 31, 2022." The increased prices only apply to new customers who purchase term insurance after the end of the current fiscal year. And, of course, anyone planning to buy in FY 22 will have to pay the increased prices," Goel noted.
According to Mahyavanshi, the increase in term insurance prices will only affect new customers.
This is because term insurance prices do not change once the policy is issued unless the terms and circumstances are changed, such as an increase in the sum assured, the inclusion or deletion of any additional benefit, and so on.
"Therefore, if a policyholder already holds a term insurance policy, this increase in compensation will have no effect on his premium." New policyholders purchasing a new term insurance plan in the financial year 2021-22, particularly those with comorbidities, would feel the impact of the increased prices. This is because smokers and those with comorbidities would have a higher premium rise than before as a result of the rate increase.
As a non-standard scenario, even persons in the informal sector or self-employed people without official proof of income or income tax return statements to prove their income might face a significant increase in premium.
New term insurance plans have already been filed by numerous insurance providers with the IRDAI (Insurance Regulatory and Development Authority of India) that reflect the higher premium prices as well as certain changes in features," Mahyavanshi said. "We will also launch the LIC IPO in 2021-22," Finance Minister Nirmala Sitharaman said in her Budget statement, "for which I am proposing the necessary adjustments in this session itself."
Finance Minister Nirmala Sitharaman said that the government will launch the Life Insurance Corporation's initial public offering (IPO) in 2022. Because the government will require Parliamentary clearance to sell the LIC interest, the finance minister announced that legislative steps to that effect will be introduced in Parliament during the Budget session.
"We will also introduce the LIC IPO in 2021-22," Finance Minister Nirmala Sitharaman said in her Budget address, "for which I am bringing the necessary adjustments in this session itself." The government has set a 1.75 lakh crore divestiture target for FY22. The government planned to raise 2.1 lakh crore from divestments in FY21 but fell short of its goal since the disinvestments of BPCL and LIC could not be completed within the year.
In a similar occasion, the finance minister stated that the sale of BPCL, CONCOR, and SCI will be completed in FY22. In addition, the government plans to privatise two public banks and one general insurance company.
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