Term life plans to gain transaction in the pandemic

According to brokerages, the development in the insurance market in India during Covid-19 outbreak will mirror a typical trend observed post SARS and MERS in other countries when buying of term plans picked up pace.

"We expect Covid-19-related disruptions to continue for the next quarter with an increase in demand for protection products over the next few months providing some support," Kotak Institutional Equities said in a report.

It added that higher appetite for this product will reduce the impact of aforesaid headwinds that the insurers will face going ahead on several of their products including unit linked plans (ULIPs) that would put heavy pressure on their margins.

The brokerage said that the term plan will get traction despite rising premiums. Market sources suggest that term policy rates have started to increase following a rise in reinsurance rates following the global pandemic.

Subscription to term plan has remained subdued in the country as policy seekers prefer money back or endowment to instruments. But higher protection cover provided by term plan is expected to swing demand in its favour post Covid-19.

Kotak Institutional Equities said that  increased appetite for term plans should be a saving grace for insurers who otherwise are in the midst of a tough period during the pandemic. Private life insurers reported 40 per cent yoy decline in individual annualised premium equivalent (APE) in March 2020 as the business was practically shut for crucial parts the month.

APE is an indicator to gauge the business sales in the life insurance industry.

Life insurance companies reported 50 per cent yoy (down 40 per cent yoy for private players) decline in individual APE in March 2020, translating to meagre 5 per cent yoy growth for FY2020 (14 per cent yoy growth in 11MFY20); this was due to the lockdown in the crucial part of the month apart from a likely slowdown in ULIP following sharp correction in capital markets, the brokerage said.

The last two weeks of the year, that typically tend to be heavy, were lost in FY2020. All the large players reported a sharp slowdown in individual business: ICICI Life was down 49 per cent yoy, SBI Life was down 42 per cent yoy and Max Life was down 36 per cent yoy. HDFC Life reported 28 per cent yoy decline in individual business with 25 per cent yoy decline in overall APE for the month.

It remains to be seen if some of the pent-up demand will likely spill over to 1QFY21, the brokerage said.

"The next two months will be weak (almost NIL business in April), and we expect the slowdown in ULIPs to continue for the rest of the year, posing some risk to persistency and operating assumptions as well," it added.