Different regions within the country are behaving differently when it comes to COVID-19 infection and fatality rates. Depending on the data that emerges finally, there could be a case of differential pricing based on geographies, subject to IRDAI approvals, Srinivasan Parthasarathy, Chief Actuary and Appointed Actuary, HDFC Life Insurance tells Preeti Kulkarni in an interview.
How has COVID-19 affected risk assessment and mortality assumptions for the life insurance industry?
These are early days yet. We are still in the middle of the pandemic and the effect is flowing through. The previous Spanish Flu pandemic of 1918 lasted for three years. So, such pandemics could last for 18 months to two years. From the actuarial perspective, data has not fully flown in yet, though we have started getting some glimpses. Reviewing mortality assumptions will take some time. Also, what you need to remember is that insurance penetration in India is low, at sub-3 percent. So what you see at the national level in terms of infection and mortality rates is not necessarily going to flow into the life insurance sector data.
What has been HDFC Life’s COVID-19 claim experience?
While the number of COVID-19 claims is increasing month-on-month, the total number of claims is within our estimates. Non-COVID-19 claims have been lower and we continue to monitor any delays in claims reporting. As of September 30, 2020, we have received 418 COVID-19 related claims on the individual business and 50 claims in the group business.
The COVID-19 reserve of Rs 41 crore created by us in April 2020 remains adequate, and the overall claims is well within the total reserves held.
COVID-19 fatalities are skewed towards older age-groups, but we do not have such a strong proportion of policyholders in that high-risk category. We have customers in older age groups in the annuity category, where there is no death cover. Our customers largely fall in the age-bracket of 35-40 years.
Overall, the total number of death claims is lower than what you normally would expect. During the lockdown, hardly any claims were reported, but this changed in July-September when the unlock process began. Deaths reported are higher from some states, particularly Maharashtra and Gujarat.
Will co-morbidities now be seen as bigger risks than earlier?
This is not India-specific. In Europe and US, too, those with co-morbidities seem more vulnerable. So, if earlier, someone who is over 55 and also has Diabetes and Hypertension was rated up by 25 percent (higher than regular, healthy applicants), now it will probably be even higher. However, the risks are still emerging and things will be clearer one year down the line when complete data would have come through.
What are the initial lessons that actuaries are picking up?
What is still a bit baffling is that different parts of the country have seen different levels of intensity at different times in terms of both infection rate and fatality rate. So, Delhi is experiencing its third wave right now, but many other parts of the country aren’t. There are many theories, but no real evidence. So, although we are one country, regions are behaving differently due to weather and hygiene conditions and local, traditional practices and so on. It will be interesting to see if any evidence emerges of inherent immunity against the virus amongst different communities. Depending on the data, there could be a case of differential pricing based on geographies, subject to IRDAI approvals.
Many life insurers raised term premiums in March and April. Is there a possibility of rates being revised upwards again this financial year?
Yes, there will be further increases, but it’s got nothing to do with COVID-19. Even before the pandemic struck, there was a plan to increase rates. The rates were lower than even developed countries and were not sustainable. We were pampered with lower rates for over a decade. The pre-2010 rates were 4-5 times the current rates. For various reasons, market became very competitive and the rates turned unsustainable.
The industry has seen a rise in demand for term insurance on the back of the pandemic-induced fears. Could you share HDFC Life’s numbers?
Since the beginning of this financial year, there is significant increase in demand for term insurance. We continue to see growth momentum in Individual protection APE. The growth for H1 FY21 stands at 38 percent with the share of protection increasing from 6 percent last H1 to 9 percent for H1 FY21. Savings business started growing in the second quarter. Our product mix today comprises 23 percent Ulips, 33 percent participating, 30 percent non-participating savings, 9 percent protection and 5 percent annuity plans.
Which product categories do you intend to focus on this financial year?
The company’s strategy features three tenets of protection: term, health and annuity. No one other than insurers can provide these three products. So, our strategy has been to significantly ramp up these three tenets. Annuity has grown significantly - 40 percent in H1 2020-21 over last year. Through our combination protection plan that offers term and COVID-19 health cover in a single policy, our endeavour is to give more comprehensive protection in terms of both health and life.
Life insurers have to launch the Saral Jeevan Bima standardised term insurance policy from January 1. Will the underwriting process differ from that of regular policies?
While term insurance has been in place for several years, insurers were primarily focussed on salaried customers, graduates and tier-I cities. The average sum assured for the industry would be around Rs 75-80 lakh. On the other hand, the standard term plan is primarily meant for those looking for lower covers of under Rs 25 lakh, although companies can file for beyond Rs 25 lakh as well. Now, there cannot be any restrictions on the basis of education, income and various other factors that are typically applied when it comes to regular policies sold in the market today. So, the standard policy will have a different target market.
This is a segment neither known to private players, nor to the reinsurers. I feel that some companies might struggle to price this product because of sheer lack of data in this target segment. It has to reflect the underlying mortality of the segment. Since there is no restriction allowed in terms of education, location, etc, the profile of customers will be very different. Tier-4 locations will also get covered.