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Covid-linked life insurance claims remain an overhang: Report

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NEW DELHI: The surge in covid-19 infections and fatality rates have raised concerns on mortality claims the industry may witness in the coming months. According to a report by Motilal Oswal Financial Services report, “Most insurers reported a higher claim experience in FY21 and have made provisions to absorb potential claims that may arise in the wake of a more devastating covid 2.0.”

The report further stated that against the total covid-related deaths of around 163000 reported in FY21, the fatality count has already increased to around 152000 in FY22 YTD. The claim experience is thus likely to stay adverse over the next couple of quarters, all the more due to delays in the reporting of claims. The stringent actions announced by several state governments have helped lower the infection count and the pickup in vaccination rates may prevent another wave of this magnitude. Despite this, claims in 1HFY22 may easily surpass the total claims seen in FY21.

As per media articles, life insurers (in aggregate) have settled claims worth ₹19.86b toward 25,500 covid-related death claims. This corresponds to 15.7% of the total covid-related fatalities in FY21. Among the key companies, we note that HDFCLIFE, IPRU, and SBILIFE settled 2300, 2500, and around 5000 death claims, respectively, in FY21. Net of reinsurance, these companies have thus incurred cost of ₹1.5b, ₹2.6b, and ₹3.2b, respectively.

Insurers may need to shore up covid provisions

All of the three biggest life insurers have made provisions toward covid claims. While HDFC Life/SBI Life has made ₹1.65b/ ₹1.83b worth of provisions, IPRU has provided for ₹3.3b worth of provisions. Given the sharp rise in fatality rates, the insurers would need to shore up their provisioning buffers, which would impact their profitability/EV. However, this does not, as such, pose any material risk to the balance sheet/solvency ratios, the report stated.

Group term products may see further price revisions

Most insurers took price hikes in early FY21 after an adverse claim experience resulted in reinsurer hiking rates. Given that individual term products are of longer tenure (20–30 years), the adverse claim experience due to an event does not necessitate an immediate price change. However, Group term products, which are annually renewable, may see price revisions on higher demand for such products in recent times. Long-term Savings products also are relatively more risk-tolerant as the lower sum assured and longer product duration enables insurers to absorb volatility, as per the report.

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