The COVID-19 pandemic has affected the life and non-life insurance business during FY20-21 and FY21-22. However, health insurance policies have shown a massive jump during the same period, says a research report.
In the report, State Bank of India (SBI) says, "The pandemic has made people aware not only about the indispensability of health insurance policy but also about the need to have adequate coverage, better features and seamless services. The realisation has led more people to buy new policies or port to insurers who offer better coverage and claim settlement."
In FY20-21, retail health insurance policies have shown a massive jump of 28.5% to Rs26,301 crore and continued to grow in FY21-22. From April 2021 to January 2022, the health insurance portfolio of insurers increased by 25.9%, with a rise in retail health policies of 17.28% and group policies of 30.1%.
"Insurance has been rapidly evolving as per the changing needs, and today's generation is looking for products which are customised and made for them. So, there is a need to innovate the products to bring more people under insurance coverage," says Dr Soumya Kanti Ghosh, group chief economic adviser of SBI.
According to the report, the Indian insurance sector has shown resilience in the COVID-19 pandemic, with the dip in premiums milder and the recovery being faster. In particular, life insurance was affected during FY20-21 and FY21-22 due to the COVID-19 pandemic, which has restricted the movement due to lock-downs, as insurance business is mostly based on the agents' performance.
After muted showing in December 2021 and January 2022 because of the third wave of the COVID-19 pandemic, life insurance companies reported impressive growth in new business premium (NBP) in February, driven mainly by initial public offering (IPO)-bound Life Insurance Corp (LIC) of India's sharp jump in NBP in the same period, fuelled by 40% growth in group single premiums. NBP of life insurers rose 22.47% year-on-year (y-o-y) to Rs27,464.76 crore in February, with LIC's NBP recording a jump of 35.4% to Rs17,849.34 crore and private insurers reporting a growth of 5% to Rs9975 crore.
The premium of non-life insurers slipped after rising for two straight months as sales fell across categories, with the crop protection business faring the worst. The industry's revenue or gross premium underwritten declined 22.6% over the previous month to Rs16,561 crore in February 2022. At the same time, y-o-y growth registered 5% and 20% above the corresponding pre-pandemic period in 2020.
According to the SBI report, in FY20-21, the death claims paid by the life insurance industry increased by 40.8% to Rs41,958 crore. In the case of individual life insurance business, during 2020-21, the life insurers paid 10.84 lakh claims, with a total benefit amount of Rs26,422 crore, a growth of 46.4%. The ticket size of the death claims has increased to Rs2.44 lakh in FY20-21, compared to Rs2.13 lakh in FY19-20. The rise in death claims seems due to the increased deaths by COVID-19, it says.
Talking about preferred distribution channels for the insurance business, the report reveals that private insurers prefer the bancassurance mode, while LIC's business is dependent on individual agents.
"Despite digitalisation, the share of policies sold through online and web aggregators stands at 1.9% in terms of premium value and around 1.6% in terms of the number of policies. The growing channel is 'bancassurance', in which the share in premium collections has increased to 29% in FY20-21 from 16.6% in FY13-14. However, in case of private insurers the share of bancassurance is around 55%, while LIC depends mostly on 'individual agents'. The individual agents’ share has been declining and is at 58% in overall industry level in terms of life insurers, about 23% for private insurers and 94% for LIC," SBI says.
However, the reports point out that brokers play a massive role in the non-life insurance business. The contribution of brokers in total non-life insurance premium increased to 31.4% in FY20-21 from 21.9% in FY13-14. At the same time, the share of corporate agent-banks and individual agents in the non-life insurance business is declining.
SBI says, "This may be due to the low commission to agents or banks and better support in claim settlement by brokers like car dealers and hospitals."
According to the report, every one in three life insurance policies in India are sold to women. The number of policies issued to women in FY20-21 is around 93 lakh policies which is 33% share as against a share of 32.23% in 2019-20. The proportion of policies on women in case of private life insurers is 27% and that of LIC is 35%. In 19 states and union territories (UTs), the share in the number of policies bought by women to the total policies sold is higher than the all-India average of 33%.
SBI also recommends certain measures to increase insurance penetration across India. It includes reducing goods and services tax (GST) charged on premium and introducing standardised products for various sectors to reduce the protection gap.
At present, all insurance policies are taxed at GST of 18%. "A reduction in premium will go a long way in building a secure nation where every household will have the ability to overcome financial stress caused by unforeseen events of life. Further, in India, the insurance penetration is low; the introduction of tax in the realm of insurance may not represent the best step forward. After COVID 19 pandemic effect on the economy, it seems this is the right time to reduce the GST rate to 5% or 'nil' rate on life, health and term insurance to cover the maximum population of India," SBI says.
According to Dr Ghosh, the government can further enhance insurance penetration by providing livelihood security through the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
"Though MGNREGA has provided livelihood security, we propose compulsory enrolment of MGNREGA workers in Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) for a payment of only Rs342 (Rs330+Rs12), which can be bought by the government. As only 10% of households or individuals completed 100 days of work, the cost of compulsory enrolment is only Rs400-Rs500 crore that may be borne by the government assuming that in FY22 about 12-13 crore individual will work under MGNREGA," he says.
In India, the overall protection gap in all the segments, both life and non-life, is about 70 to 80%. In other words, only 20% to 30% is being availed any type of insurance.
SBI says, "To plug the protection gap quickly, in line with Jan Suraksha, the Union government should come out with some standardised products for various sectors so that the protection gap in each segment can be reduced significantly."
For example, by considering 2020 floods in India, the total economic loss was of US$7.5bn (billion) or about Rs52,500 crore but insurance of only 11%. "If the Union government would have insured it, then the premium for the sum assurance of Rs60,000 crore would have (been) only in the range of Rs13,000 to Rs15,000 crore, thus saving the Government of at least Rs40,000 crore!" Dr Ghosh says.