You may have received several messages from your insurer(s) about how the company stands with you during the coronavirus (COVID-19) pandemic.
Renewal of premium payments have been given a 30-day extension, while premium hike in motor third-party insurance has been deferred and insurers have been asked to quickly settle death and medical policy claims from COVID-19.
However, amidst all this, an internal crisis is brewing among insurance companies. While new policy sales are hampered due to the 21-day lockdown in India (called to halt the spread of the virus), the claims have started to pile up.
So far, India has reported 834 COVID-19 cases and 19 deaths. However, there has been a steady, daily spike in the number of cases as testing is beginning on a full swing.
For insurers, the pressure is from both insured and reinsurers. A rise in claims filed means that the insurance policy will have to be made more expensive via a premium hike from next year onwards.
Reinsurers offer risk covers to insurance companies to help them tide over large claims from policies. Since most large global reinsurers have presence in markets such as the United States, Italy and China -- which are among the most-affected nations, these companies are facing a direct hit.
Since several hundred claims of death, health and travel insurance are now being filed due to COVID-19 across the world, claims paid by reinsurers to insurance companies has also risen. This will result in reinsurance companies steeply hiking the rates at which they provide covers to insurers.
Insurers will be forced to hike prices of existing policies by at least 25-30 percent from 2021 onwards.
In fact, in a few categories like health and travel insurance the premiums being quoted are going up by 5-8 percent owing to a rise in claims. The number of exclusions or incidents for which insurers will not pay for, is also on the rise. Past claims history is used by insurers to take this decision.
While this is not unique to India, the impact on Indian policyholders would be higher because we are a price sensitive market. The sale of basic covers such as term insurance, health insurance or motor insurance is also dependent on how cheap the product is.
So policyholders, brace yourself to pay up more for your insurance policy from 2021 onwards. Worst still, learning a lesson or two from the current COVID-19 scenario, your insurer could also make pandemic-related claims a standard exclusion going forward.