On December 31, 2019, China reported patients in the city of Wuhan in Hubei Province infected with the novel coronavirus (COVID-19). It is known as severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).
Soon, the novel coronavirus had spread globally, and as on July 23, 2020, approximately 15.2 million cases have been reported worldwide. The known deaths due to this virus stand at 624,370.
India reported its first confirmed coronavirus patient in Kerala on January 30, 2020. The number has since then grown, and as on July 22, 2020, the total confirmed cases in the country are over 1.1 million with more than 28,000 deaths.
The COVID-19 pandemic brought the global giants to a standstill with most countries imposing complete lockdowns. There are stringent restrictions on travel and tourism across the world to curb the spread of the virus. Economies all over the globe have seen sharp declines during 2020.
Apart from affecting the world economy, the pandemic has alsoaffected the insurance industry in India. Life and general insurers are going through a difficult phase, and the scenario may worsen with time if the circumstances do not improve.
Here is how COVID-19will affect the Indian life insurance industry:
- Term insurance policies
There may be a higher number of people who opt to seek pure life coverage through term plans. Moreover, as this market is primarily online, a boost in the demand for term insurance may be seen. However, the sum assured may not be very high due to the income uncertainty faced by the majority of the Indian population. Additionally, a higher sum assured requires medical tests, and people are currently reluctant to go through these diagnostic procedures, which may result in a decline in sales.
- Investment-linked insurance policies
The stock market has been very uncertain and is going through a rough patch due to COVD-19. Therefore, only a selected few individuals who want to buy at the bottom may acquire new policies. Existing buyers may retain their positions in on-going ULIP plans to benefit from rupee cost averaging. The industry may see a surge in demand if the segment is moved to online platforms using analytics-based customer identification and selective underwriting.
- Long-term savings insurance plans
Long-term guarantees seem like an attractive investment avenueduring the current uncertainty. However, insurers may face difficulties to market these products due to the plummeting rates of interest. Additionally, people may lean towards greater liquidity, thereby resulting in some stress on long-term pension plans. The overall demand for long-term plans like whole life insurance plans may reduce.
Often, there is a rise in demand for insurance at the end of the financial year. However, the lockdown and social distancing affected sales during this period. A high number of life covers are sold through agents or banc assurance executives, and the present situation poses an obstacle to such sales. Simple digitalization may not be able to overcome this limitation, as the consultation is complicated and iterative. The sales representatives offer multiple illustrations using life insurance calculators, and to replace such interaction, powerful processes are required. Additionally, potential customers may not have the same level of trust in digital processes as compared to personal interactions.
Buying life cover is an emotional decision and affects the long-term financial planning of the buyers. Insurance companies will have to find ways to overcome the social distancing limitations that are the‘new normal’ due to the coronavirus pandemic. Insurers will have to understand the emotional quotient and behavioral dynamics of buyers to encourage them to acquire life cover in the new world after this pandemic.