COVID-19 impact | Life insurers propose innovative product structures

Reduced cover for a few policies without medical tests, bundled protection and health plan, annual premium payments on EMI basis and even external benchmark-linked products. These are some of the innovations in the production structure being proposed by life insurance companies to the regulator even as coronavirus has impacted business.

Industry officials told Moneycontrol this is still at a proposal stage and the regulator (IRDAI) will soon take a decision on this matter.

The coronavirus-led lockdown that started on March 25 completely halted face-to-face interaction with customers. This was followed by a spate of job and pay cuts across companies in India leading to financial uncertainties for policyholders.

Hence, there is a proposal with IRDAI to enable policy payments on an instalment basis for those who have sought an annual payment mode for life products. Persistency (renewal) calculations would also be suitably altered to match this change in the payment schedule.

The chief of a mid-sized private life insurer said this would save a policy from lapsing in case an insured is not able to pay the full premium.

“Renewal rates will improve if EMI-like structure is allowed for annual payment mode policies at least for this year. Because even if there is a deferment period offered for paying renewal premium, several customers may not be able to pay it at one-go considering the prevailing financial conditions,” the official added.

For policy issuance, depending on age and sum insured of the life policy, medical tests are mandatory for certain categories. But the pandemic has made it impossible to conduct these tests. While several life insurers are seeking medical information from customers through telephonic or video interactions with customers, policies cannot be issued for older persons without physical tests.

A structure of limited life cover is being proposed where the insured will get access to a lower sum insured until the medical test is conducted. This will ensure that prospective customers at least get access to a basic life cover.

Also, during the pandemic, there has been a renewed demand for term products due to the rise in the number of COVID-19 deaths in India. So far, there have been 14,476 COVID-19 related deaths in the country.

To deal with the rising demand for medical covers and term (protection) covers that will help the insured, bundled life plus health covers have been proposed. Here the life insurer could offer a cover with elements of medical insurance and a protection plan.

Rising volatility

There has been a rise in interest rate volatility ever since January 2020. This has been accelerated since March when the lockdown began.

Life insurers are seeking a cushion against the sudden fluctuations in interest rates and possible impact on the return.

In May, life insurers sought IRDAI permission to stop paying the minimum 4 percent guaranteed return on discontinued funds of unit-linked insurance plans (Ulips). But, the regulator is unlikely to offer any relief to insurers.

Guaranteed products are also finding favour among customers especially those risk-averse to buying Ulips. Since guarantee products also bring interest rate risk, a proposal has been sent to IRDAI to have index-linked guarantee products.

The chief executive officer of a private life insurer told Moneycontrol that since a benchmark like 10-year G-Sec is transparent, policyholders would be able to keep track. The index could be the 10-year G-Sec and the insurance policy would be linked to this external benchmark. So, the returns would be proportional to this instrument. This would be similar to the banking sector.

From October 1, 2019, banking regulator Reserve Bank of India mandated all new floating rate personal or retail loans to be linked to an external benchmark. This ensures that whenever there is a repo rate cut, the customers benefit through a lower interest rate.