Omicron may influence rates of term insurance

Omicron may influence rates of term insurance
© Provided by The Times of India

Mumbai: The discovery of the new Omicron variant of the coronavirus has delayed stability in the term insurance market. Insurers, who are raising their prices on term insurance this month, are now waiting to see the impact of Omicron before finalising their term insurance strategy.

Speaking to TOI, Bajaj Allianz Life Insurance MD & CEO Tarun Chugh said that the company will be raising term insurance rates this month following a communication from reinsurers in September announcing a hike in rates and tightening of process. “The next two to three weeks and the findings from South Africa are critical. The increase of our term pricing was under way and things were expected to stabilise. But with this, it is a little bit of an unknown,” said Chugh. He added that what is being watched out for is whether it turns out to be virulent and there are a lot of hospitalisation cases, which may call for a reset.

While life insurers commit to a fixed term insurance rate for life, the reinsurers revise their prices regularly based on experience. According to Chugh, many insurers have already thought through the increase in pricing brought about by the reinsurers in September, but the new variant might stretch the onboarding process. Besides having a wait period for Covid survivors, insurers are asking prospects for a negative RT-PCR report if any of their family members contracted the virus.

“Term is not an easy product to buy anyway, but now the discussions have become elongated. As a result, the issuance rate has come down,” said Chugh. He added that this also resulted in lesser policies being issued in a straight-through manner.

According to a report last week on the life insurance industry by rating agency ICRA, the total sum assured for the private sector was Rs 4.04 lakh crore in FY2021, up only 1% year-on-year. While for LIC, it had increased 7.5% Y-o-Y to Rs 8.9 lakh crore. Private life insurers have been more aggressive than LIC in bringing down term rates. Even after the forthcoming hikes, term rates will be cheaper than they were a decade ago. According to Chugh, term rates in India are lower than in most European countries despite better life expectancy there.

While there is uncertainty over term rates, the drop in interest rates has helped push up sales of annuity business for Bajaj Allianz Life Insurance. Chugh said that the guaranteed returns under annuity has opened up a new segment of the market of older individuals. “In the last seven months, we have managed to grow 53% as compared to the rest of the private industry, which grew by 30%,” said Chugh.

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