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Life insurers have begun to maintain a separate COVID-related reserve along with their existing reserves as death claims soar.

Insurance companies paid out over Rs 2,000 crore to settle over 25,500 death claims in the last fiscal.

Life insurers have begun to maintain a separate COVID-related reserve along with their existing reserves and so they are comparatively better off than last year, said Yug Tibrewal, Research Analyst, Choice Broking.

With the second wave of COVID turning severe in April, the impact on insurance companies is expected to be high. Experts say it may impact insurance companies compared to the COVID peak time claims in September-October 2020.

Insurance claims due to COVID are definitely expected to rise, but the lockdowns might delay them, he said.

In terms of business performance, life insurance companies are not worse off in FY21 as compared to the previous year. The overall industry saw its New Business Premiums (NBP) grow by 7.5 percent Y-o-Y. The private players grew by 16 percent, while LIC saw 3.5 percent growth in FY21.

The IRDAI requires life insurers to maintain a solvency ratio of 150 percent at minimum, with most insurers maintaining their solvency at 200 percent or more. This provides a buffer to any sudden risk that arises on their balance sheets like the current pandemic.

Tibrewal said, rising COVID cases act as a precursor to an increase in deaths and consequently a rise in claims. Companies can utilize this time to raise capital for claims before they start to occur.

Additionally, life insurers have begun to maintain a separate COVID-related reserve along with their existing reserve. "Considering this, we don’t envision COVID- related claims will significantly impact the balance sheets of life insurers. However, profitability will be affected by increased reserves", he said.

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