Term policy rates are likely to see another round of price increase from April 1, 2021, amidst rise in COVID-19 death claims and reinsurance price rises.
Sources told Moneycontrol that private life insurers would increase rates from FY22 onwards between 10-20 percent. Hike in premium rates requires regulatory approval and hence products will be filed with IRDAI from February 2021 onwards with the increased rates. LIC is expected to not hike rates owing to its large policy base.
"Reinsurance rates are on the rise and even though COVID-19 claims are under control at present, it would be tough to bear the cost rise on our books. Hence, term plan rates will be increased," said the head actuary at a private life insurer.
Life insurers have received close to Rs 120 crore as COVID-19 death claims so far under term plans. Term plans and health plans have become the most popular products amidst the Coronavirus outbreak.
Reinsurers will be hiking rates globally from 2021 amidst fears of a second wave of COVID-19 in parts of South-East Asia (including India), United States and UK. The Coronavirus is said to be more active in the winter months.
In FY21, the term plan premiums went up by 15-20 percent as reinsurance rates for these policies had been revised. Large insurers like LIC are able to bear the cost due to a large policy base.
"We have no option but to hike rates. The year 2020 has been unprecedented for the insurance market in India due to the pandemic. The losses need to be passed on in the form of a premium hike," said the chief financial officer of a private life insurer.
Reinsurance premiums are paid by insurance companies for buying a cover against providing protection for large risks. When the reinsurers hike rates, this is immediately passed on to customers in the form of premium hike.
As of now, protection plans offer the best margins as far as life insurance is concerned. Hence, a majority of insurers have shifted their business mix towards these products.Term plans’ share in the annualised premium equivalent for life insurers has gone up from less than 5 percent about three years ago, to 20-25 percent at present. When the reinsurance rates go up, absorbing it in the balance sheet would mean that there would be an impact on the profits, a factor that leads to insurers passing on the cost in form of premium hike.