MC EXCLUSIVE Life insurers grapple with post-Covid mortality spike, see 25% decline in insurance coverage

"This is a crisis," said Sridhar Sivaram, President, Enam Holdings.

He pointed out that in FY24, the mortality rate for HDFC Life, ICICI Prudential and SBI Life is actually higher than the COVID-19 peak, Sivaram pointed out.

According to data from the Insurance Regulatory and Development Authority of India (IRDAI), mortality claims rose to 1.085 million in FY25, up from 1.009 million in FY24 and significantly higher than the 623,000 reported in FY20.

This marks an almost 75 percent increase in death claims over five years, a sharp rise for an industry that fundamentally relies on stable mortality patterns.

"Life insurance as a sector is built on actuarial science," said a life insurer who chose to stay anonymous, "where pricing and risk assessments depend on the assumption that death rates change gradually and predictably over time."

When that assumption is disrupted, as it has been in recent years, the entire pricing model for protection products like term life is thrown off balance, the insurer said.

The surge began in FY21, with claims rising by nearly 50 percent from the previous year to 930,000, largely due to the initial
COVID-19 wave. FY22 saw the highest volume, with 1.17 million claims during the devastating Delta variant outbreak.

While claims receded slightly in the following years, they remained well above pre-pandemic levels, with FY25 still recording over a million deaths covered under life insurance.

This suggests that life insurers are now covering fewer lives, but are paying out more death claims, indicating a concentrated risk pool.

"Unfortunately, there is no comprehensive data available on mortality at the national level," Sivaram said, adding that the Health Ministry needs to take steps to make such information accessible.

FY21, which coincides with the initial pandemic wave, had the highest ratio of mortality claims to total deaths at 1.35 percent.

"There could be multiple reasons that can be attributed to this," said a health economist.

"Those who continue to remain insured may belong to older age brackets or have underlying health conditions that make them more vulnerable. Additionally, many of these policyholders could be holding legacy insurance policies taken during or just after the pandemic years, when health risks were already high but not fully accounted for in the underwriting process."

He explained that COVID-19’s long-term effects, such as cardiovascular complications, respiratory issues, and undiagnosed illnesses due to deferred medical care, could still be playing out, leading to higher mortality claims even years after the peak of the pandemic.

"The virus may have triggered or worsened chronic illnesses that are now resulting in fatalities, and insurance data is just beginning to reflect that delayed impact," he added.

Moreover, this persistent pressure from rising mortality claims has led Indian life insurers to revise and recalibrate pricing for term life insurance.

Major companies like HDFC Life, ICICI Prudential Life, Axis Max Life and Bajaj Allianz Life are adjusting term life pricing, to cope with this persistent pressure from rising mortality claims.

In order to compensate for this contraction in group coverage and rising term life claims, these insurers have pivoted sharply toward retail-oriented, investment-linked policies, most notably Unit Linked Insurance Plans (ULIPs).

These products bundle insurance with market-linked returns and appeal to a growing segment of financially literate, urban consumers seeking both protection and wealth creation.

SBI Life derived approximately 67 percent of its Annual Premium Equivalent (APE) from ULIPs. ICICI Prudential Life reported a ULIP share of 50.8 percent of its APE. HDFC Life indicated a ULIP share ranging from 24 percent to 37 percent, depending on the quarter in FY25.