The rising number of claims has emerged as a major concern for the life insurance industry.
The rising number of claims has emerged as a major concern for the life insurance industry.
Photo by Monstera from Pexels

COVID-19 has created a two-way impact on the life insurance industry. On one hand, the number of claims has gone up, impacting their profitability. On the other, business is picking up fast with people understanding the value of protecting their lives.

The rising number of claims has emerged as a major concern for the life insurance industry. Most insurers have reported higher claims in FY21. And have made provisions to absorb potential claims to tackle any potential surge in the number of claims post-second COVID-19 wave.

Number of claims goes up

The number of claims is set to rise in FY22 as the fatality count has already gone up to 1.52 lakh in FY22. It was at 1.63 lakh for the entire financial year of FY21. The claim settlement requirement is thus likely to stay elevated over the next couple of quarters.

The number of new claims can also be higher as delayed cases are also likely to emerge going ahead. And it is likely to surpass the levels of the previous year. As per the reports, life insurers at the aggregate level have so far settled claims worth Rs 1,986 crore toward 25,500 COVID-related death claims. This is 15.7 percent of the total COVID-related fatalities in FY21.

Among the key companies, HDFC Life, ICICI PRU, and SBI Life settled 2,300, 2,500, and ~5,000 death claims, respectively, in FY21. Their incurred cost stood at Rs 150 crore, Rs 260 crore, and Rs 320 crore, respectively.

Protection business gains momentum

Despite the rising number of claims, the insurance companies are witnessing positive momentum in their protection business. It is ably aided by the fear psychosis induced by the COVID-19 pandemic.

The share of protection in the total APE has risen sharply for the majority of players. Being the most profitable product, the increase of protection mix has also helped the insurance companies to raise their VNB margins.

Elevated COVID-19 provisions

All of the three biggest life insurers have increased their provisions towards COVID-19 claims. HDFC Life and SBI Life have made provisions worth Rs 165 crore and Rs 183 crore, ICICI PRU has made Rs 330 crore worth of provisions.

Given the sharp rise in fatality rates, the insurers are likely to further strengthen their provisioning buffers. It could impact their profitability over the next couple of quarters. However, it is unlikely to pose any material risk to the balance sheet and solvency ratios of the listed life insurance companies.

(To receive our E-paper on whatsapp daily, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

Free Press Journal