As 6 pvt insurers set to increase term plan premiums, LIC won't raise rates

As many as six life insurance companies are set to increase their term plan premiums by 10-15 per cent from April, but Life Insurance Corporation (LIC), the largest life insurer in the country, will not raise rates for such schemes.

While several big players had raised rates last year, following the outbreak of the Co­vid-19 pandemic, LIC did not do so and it has no plans to do it now, sources in the company said.

LIC’s pure protection offerings such as Jeevan Amar and Tech Term have very competitive rates and have been received well.

“Unlike its private counterparts, LIC has not received any proposal from the reinsurers to harden rates,” a source said.

Insurers such as TATA AIA Life Insurance, Max Life Insurance, Canara HSBC OBC Life Insurance, PNB MetLife, IndiaFirst Life insurance, and Aegon Life insurance are going to raise rates, industry insiders said. The claims outgo for life insurers has increased due to Covid-19. The uncertainty caused by the pandemic could have resulted in reinsurers hardening their rates. Also, term plan rates have been very low for a long time, making them somewhat unsustainable. Although quite a few life insurers are increasing premiums for term plans, industry insiders believe this will not have a negative impact on the demand for such products. They say awareness about these offerings has increased manifold after Covid-19. Despite the price rise, term plans are relatively cheaper in India than in the US or even Singapore, said experts.

Last year, ICICI Prudential Life Insurance, HDFC Life Insurance, and a few others had raised rates for their term plans in the range of 20-30 per cent. ICICI Prudential was one of the first life insurance companies to have passed on the reinsurance hike to its customers last year. “Given that protection is a long business, it’s important for companies to have underwriting practices commensurate with the price, as risks will emerge over a period of time,” the company had said.  In an interview with Business Standard recently, Vibha Padalkar, MD & CEO of HDFC Life, had said, “We have re-priced our protection products during the year based on emerging experience and reinsurance price revisions.”

Experts said that after the last year’s hike, term plan prices had gone back to 2014 levels. With another price hike, prices will go back to 2010 levels, when term insurance started in India. Rates were sustainable back then, but in the past 10 years, prices have fallen significantly in the market.

Even before Covid-19, life insurers became aggressive on term products because it is a margin-accretive business, resulting in a price war where everybody was looking to offer term products at the cheapest rate. But the quality of underwriting slipped.

Term insurance started as a niche category, with a few insurance firms offering it. Insurers saw the scope of softening the price so that more people could buy the product. A lot of firms became serious about the protection business because it is margin accretive. Experts think the current price rise will hold good for at least two years, after which reinsurers might look at changing rates again, depending on the mortality experience.