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Brace for insurance premium hikes in post COVID-19 era

As claims mount due to COVID-19 cases globally, insurers will begin hiking premiums once the cases subside

March 28, 2020 / 09:21 AM IST

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.

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COVID-19 Vaccine

Frequently Asked Questions

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How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

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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.
M Saraswathy
first published: Mar 28, 2020 09:21 am

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