Role of Insurance in Current Times

The idea of ‘protection against probable risk’ never carried as much weight among our citizens earlier as it does today. The onset of COVID-19, last year, instilled a sense of fear and uncertainty, not only among individuals and families but also businesses and the overall economy. Astronomical COVID-19 treatment bills from private hospitals and the rising healthcare costs transformed people’s perceptions about ‘Insurance’.

Before we hop onto understanding Insurance policies and the impact of COVID-19 on the industry, let’s understand some basics.

Insurance: Meaning, Types & Industry Overview

(Readers aware of the basics, kindly skip this section)

Insurance is a legal contract between two parties i.e. the insurance company (insurer) and the individual (insured). Here, the insurance company promises to make good the losses of the insured on the occurrence of an uncertain event, like damage, loss or death. The insured pays a ‘premium’ in return for the promise made by the insurer.

The Insurance Mechanism

To be noted: The premium amount charged by the insurance company is determined using actuarial calculations, based on the extent of risk involved, the sum insured, the creditworthiness of the policyholder, any chronic illnesses or habits (specifically in case of health insurance), the age of the policyholder (as in case of life insurance) and various other relevant factors.

Broadly, the Insurance products can be classified into two categories:

1. Life Insurance: A contract very advantageous for every bread-earner of the family, life insurance assures financial protection of the dependents in an event of the untimely death of the individual. Additionally, the premiums paid towards a life insurance policy are tax-deductible under section 80C of the Income Tax Act, 1961.

2. Non-Life Insurance: Also known as General Insurance, this category includes several types of insurance policies for motor, health or disability, fire, marine shipments, property, etc. that aim to cover specific financial risks attached to these valuable assets. Simply, it covers anything but Life!

Different types of Non-Life Insurance Policies

In India, the insurance sector is regulated by the Insurance Regulatory and Development Authority of India (IRDAI). Currently, there are 57 insurance companies in India, out of which 24 are life insurers and 33 are in the non-life insurance business. Life Insurance Corporation Of India (LIC) is the only public sector company in the life insurance business, whereas there are six public sector players in the non-life segment.

All these years, Insurance was seen mainly as an instrument for tax-saving or a mandate (eg. motor insurance). However, the COVID-19 pandemic brought about a shift in this perception by compelling people to secure their own and family's health in these testing times. Purchasing health insurance was seen as the most favourable step that could provide some certainty in dealing with the biggest challenge that the healthcare industry has ever faced!

Increasing privatisation in the Insurance Industry

COVID-19 Impact on the Insurance Industry

The pandemic undoubtedly proved to be a shot in the arm for the health insurance sector as between April-September 2020, Health Insurance leapt ahead of Motor Insurance to lead the non-life insurance segment in India, in terms of premium collection, albeit temporary! The reason being most Health Insurance Policies had to cover any hospitalisation expenses arising from non-cosmetic illnesses - therefore including Coronavirus. Experts opine that this positive realisation could transform health insurance from a traditionally ‘push’ product to a ‘pull’ one.

In the first half of 2020-21, health premiums occupied the top spot in Non-Life Segment.

A positive trend was also noticed in the Life Insurance category that witnessed a 20% growth during the national lockdown. This is because all life insurance policies had to cover death due to the virus infection; i.e., if a policyholder dies unexpectedly due to COVID-19, death benefits are payable to his/her nominees. Therefore, life and health insurance were seen as the best tools for both, investments and protection.

To be noted: If you are planning to buy a life insurance policy, the insurance company will determine your premium amount after analysing your current medical condition as well as medical history. Your insurance application may stand postponed or even rejected based on your travel plans, age or if you test positive for COVID-19 while applying for the Insurance.

Apart from coverage under Health and Life Insurance, another very encouraging step taken by the IRDAI was the launch of affordable COVID-specific health insurance plans, namely Corona Rakshak and Corona Kavach. IRDAI mandated the launch of these policies as a ‘basic standard plan’ to be offered by every insurer, initially valid till 31st March 2021, but now extended till 30th September 2021.

More about Corona Kavach and Corona Rakshak

Both these policies can be availed by anyone between the age group of 18 to 65 years and cover dependent children between the age group of 3 months to 25 years. These policies come in varying tenures of 3.5, 6.5 or 9.5 months, of which 15 days is the waiting period. Corona Kavach is a floater policy that covers individuals as well as their family; whereas Corona Rakshak covers just the individual. Both require a single premium payment, but the compensation varies; as mentioned in the table:

Additionally, Corona kavach also covers home-treatment expenses for up to 14 days, given that it is done through the advice of a medical practitioner. Due to these differences, every individual should analyse their requirements and choose the policy that best meets their needs. Lately, with the affordability concerns subsiding, easier access to multiple policy options and improved benefits, an increasing number of customers are migrating to more comprehensive health insurance plans that offer benefits going beyond just virus-related illnesses.

Coming back to the impact of COVID-19...

A survey conducted by Policybazaar revealed that there is a 40% uptick in demand for the higher sum insured policies (of more than ₹25 lakhs) in the past financial year. A large majority of these people are the ones who ported their low sum-insured plans (between ₹5-10 lakhs) to higher sum-insured plans. About 35% of customers, between the age group of 18-40 years, now hold ₹1 crore health cover plans.

A measure allowing an EMI option for purchasing insurance policies, introduced by the IRDAI last year, has also been positively embraced by the customers. Health insurers have been asked to approve and settle cashless COVID-19 treatment claims within 60 minutes, to prevent delays in the discharge of patients, therefore allowing accommodation and treatment of maximum possible patients in public, private and makeshift hospitals. All these proactive measures have boosted the health insurance sector, which has in the past year recorded the highest ever premiums collected and maximum claims ever made and settled.

Source: Statista

Undeniably, the pandemic has brought about some tectonic shifts in the insurance sector. Another such lasting impact is the massive shift towards digitalisation. Today, any industry devoid of technology would be labelled as outmoded. Thus in this era of digital disruption, the insurance industry has been compelled to reimagine itself, integrate digital technologies in traditional processes to improve efficiency and deliver an enriching customer experience by interacting, understanding and solving problems of the target audiences, digitally.

However, the overall picture is not altogether rosy. The industry is grappling to estimate the value of COVID-related claims to decide the premium costs. There are oodles of doubts around the treatment expenses for COVID-19. The claim costs for COVID are higher than any other infectious diseases the world has ever seen. Despite the regulators and insurers being excessively proactive, there is a multitude of doubts in the claim-settlement procedures, therefore leading to unpleasant customer experiences.

The future ahead…

The insurance industry has leant it the hard way that being data-driven is the new normal. Since most businesses are dealing with their worst times, IRDAI is expecting the demand for newer insurance policies like those for business interruption and cyber risks to rise shortly. It has formed an ‘Indian Pandemic Risk Tool’ to provide solutions for risks related to business continuity, reducing stress on individuals and dealing with issues of migrant labourers. Initially, their product will cater to MSMEs and will later be modified and enhanced as per need.

To sum up, only time will tell how long the impact of COVID-19 will last and whether it will truly transform the way this industry functions for the better. Will the insurers be able to retain their new customers while also walking the path of digitalisation - remains to be seen.

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