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Life insurance: You may have to pay 20-40% more for life cover next year

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Mumbai: Life insurance premiums are set to increase in 2022 as large reinsurance companies are likely to raise charges that are likely to be passed on to customers.

Higher premiums may mean higher profitability for insurers but could also impact demand for policies at a time that awareness about insurance is at a peak.

Expectations are that premiums will rise between 20% and 40% as reinsurers will look to cover for increased losses due to higher claims.

Many companies have already applied to the Insurance Regulatory and Development Authority of India (IRDAI) seeking permission to hike charges while some are negotiating with global reinsurers to minimize the hikes. The hike in premiums is likely to impact both online and offline policies and will be the first time the online market will witness a shake-up in at least six years.

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“The price increase has been talked about for six months and now looks inevitable. Higher claims due to Covid have hit reinsurers as a result of which prices have increased. We have already filed for an increase with the IRDAI on some plans and depending on the products the increase has either been implemented or to be shortly implemented,” said Vighnesh Shahane, CEO, Ageas Federal Life Insurance.

While smaller insurance companies have less bargaining power with reinsurers, larger companies are still negotiating to keep the hike at the minimum. In an interview with ET last week, LIC chairman MR Kumar said his company is still negotiating with reinsurers as the surge in Covid cases is now behind us and companies have still made a profit despite settling a high number of claims. He also cautioned that a rise in premiums could hit demand. “Now is the time people are buying term plans because the awareness is there and we don’t want people to turn away and say things are becoming costly. If they hike rates it will have an impact. The treaties (with reinsurers) are likely to be signed in Q4 (2021) and we will know then,” Kumar said.

But life insurers could still make more profits as the higher premium rates will make up for less number of policies sold. Also, though a one-off event like Covid-19 helps insurers argue a case for higher premiums, the claims are likely to fall in subsequent years but higher premium stays.

Sanjay Kedia, CEO, Marsh India Insurance Brokers, said that premium rates have already risen with corporate group policies bearing the brunt of the raise. “We have seen a rate rise of 300 to 1000% on group corporate policies largely due to pandemic driven claims. This is owing to the current pandemic scenario where there has been an increased incidence of claims experiences for various insurance and insurance support has been minimal on the group side of the business. The reinsurance rates are high leading to insurance term life rates being high,” Kedia said. He added that retail premium rates could increase further by 40% to 60% while the hike in corporate premiums could be between 50% and 100%. “Demand remains at an all-time high and sadly supply is constrained,” he said referring to the lower capacity of insurers to take new customers after the pandemic.

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