How Has Occurance of Covid-19 Affected Insurance in India?

The COVID-19 pandemic has had a tremendous impact on the business sector in India. Read on to know about how the deadly disease has affected the insurance industry.Ever since the WHO (World Health Organisation) declared the COVID-19 infection as a global pandemic in March 2020, businesses and individuals around the world have suffered huge losses. The COVID-19 infection, which began as a health crisis, now it has become one of the biggest financial crises of all times.According to a McKinsey report, India is among the 15 worst affected economies in the world. Another report by PwC states that the two most productive months for the insurance – March (Life Insurance) and April (non-life insurance) renewals were hit by about 30% and 15% in 2020. Let us take a close look at how COVID-19 affected the insurance industry in India and the individual insurance sectors.

The primary purpose of a life insurance policy is to secure the financial future of your family members. Consequently, life insurance has a direct correlation with people’s earnings, their business turnover, and net worth. Since the onset of the COVID-19 pandemic, many people are rushing to purchase a policy with high sum assured and provide a wider coverage to their family.According to the PwC report, pure life insurance plans like the term insurance are likely to see a massive spike in demand in the post COVID-19.

As compared to the west, India has traditionally been an underinsured country. Many people here consider insurance, especially health insurance as an unnecessary expense. One of the main reasons for this can be attributed to lack of awareness about the importance of health insurance among the public.However, over the years, the situation has changed considerably. The government of India has launched several initiatives like the ‘ Ayushman Bharat ,’ which aims to provide insurance coverage to the poor. Also, in 2020, as the number of COVID-19 was increasing rapidly and the number of claims filed by the health insurance policy holders shot up, the Insurance Regulatory and Development Authority (IRDA) all insurance companies in India to Corona-specific short-term health insurance plans – Corona Kavach and Corona Rakshak plans.Both the plans have distinct features. While the Corona Kavach is an indemnity plan, the latter is a fixed benefit healthcare plan. These policies were introduced to specifically cover COVID-19 treatment expenses. The IRDAI also mandated all the insurers to extend the coverage for COVID-19 treatment under the existing policies.Today, even as the vaccination drive has started worldwide, experts suggest that the infection has played a huge role in creating awareness among the people about the importance of a robust healthcare plan.

Since general insurance undertakes the valuations of the businesses, assets and the overall economic activity, it is benchmarked with the Gross Domestic Product (GDP) to measure the insurance penetration. As a result, a large proportion of the general insurance sector is dependent on the performance of the individual businesses, and the business sector at large.With the onset of the COVID-19 pandemic and the subsequent lockdown measures announced by the government to prevent the infection spread, businesses were forced to shut. The general insurance sector too took a massive hit. Experts suggest that the sector is slowly and steadily on the recovery path as the vaccination drive begins worldwide. But, given the massive jolt it received due to the COVID-19 infection spread in 2020, the sector is slated to regain pre-COVID levels by 2022 as the global economy recovers.

The automobile insurance industry accounts for about 35% of the overall insurance premium collection. And, even before the COVID-19 onset and the subsequent lockdown, the industry was witnessing a slowdown. The pandemic further impacted the automobile insurance industry and the revenue was significantly reduced.The slowdown in the motor insurance industry came as a major wake-up call for the experts who started looking for new approaches and solutions to keep the customers engaged. And, one of the important solutions they offered is the ‘pay-as-you-drive’ model.With most of the organisations adopting work-from-home policy, the number of vehicles plying on the roads drastically reduced. As the year 2020 saw reduced usage of their vehicles by the motor insurance policyholders, the need for availing a high-price insurance cover also reduced. This is where the ‘pay-as-you-drive’ model came as a welcome relief for the vehicle owners, the model allows the car owners to insure their vehicle only for the kilometres they drive as against the general average kilometres they drive annually.

Thus, it is obvious that COVID-19 has had a significant impact on the insurance sector in India.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.