Life insurers eye double-digit growth as Covid-19 pandemic pain eases

The life insurance sector has witnessed a couple of turbulent years ever since the pandemic began, with growth rates plummeting the first year because of supply-side issues, and just when they were stabilising from the initial impact of Covid, the second wave hit insurers hard as a flurry of death claims ate into their profitability. After the second wave of the pandemic, growth for the sector has picked up, with the easing of supply-side issues; the industry looks set to register double-digit growth in FY22.

The new business premia (NBP) of the industry have grown at 8.43 per cent in the first 11 months of the current financial year (FY22). While the private sector has reported growth of over 24 per cent, state-owned insurance behemoth – Life Insurance Corporation (LIC) – has grown by a meagre 0.24 per cent. NBP mean the premia acquired from new policies for a particular year.

Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance said: “With the Covid-19 phase seemingly behind, the economy made a strong comeback towards the end of FY22. This, along with increased awareness about insurance, is contributing to the life insurance sector’s growth. With private players leading the way, it is estimated that the industry will end FY22 on a strong note, with 13-15 per cent growth on an individual APE (annualised premium equivalent) basis”.

“The coming year seems to be even more promising. The Reserve Bank of India (RBI), in its February monetary policy meeting, projected FY23 gross domestic product growth at 7.8 per cent. Taking that into account and applying a positive correlation of 2x growth to the life insurance sector, growth for the next year is likely to be in the range of 15-16 per cent on an APE basis”, he said.

“Overall growth should be in double digits in (FY22). Protection growth will be calibrated. However, there is clearly a runway for protection growth and it will grow in double digits. Holistic growth of the life insurance sector should be in double digits,” said a private sector life insurance executive.

Life insurance has seen strong growth in the protection business as awareness and risk perception among consumers have grown significantly due to the pandemic. Guaranteed products, as well as annuity products, have also seen good growth during this period. While unit-linked products have witnessed muted growth due to volatility in the equity markets, they are expected to recover gradually. Initial public offering (IPO)-bound LIC, which has traditionally sold more of par products, has indicated its intention of growing its non-par business, which is expected to augur well for the industry, given the huge reach it has.

Typically, March is the best month for life insurance companies, in terms of business, because the sale of tax-saving policies shoots up during this period. But, experts believe, March could see muted growth this year because of a high base effect and the choppy equity markets. “We expect the growth trend to remain modest, given pricing pressure on the protection business, while Q4FY22 being a seasonally strong quarter will support the overall momentum with a continued focus on non-par products. Unit-linked policies (Ulip) will witness a gradual recovery,” Motilal Oswal had said in its recent report.

On the basis of individual new business APE, the industry witnessed a strong comeback this year with 17 per cent year-on-year (YoY) growth as of February, led by the private sector (24 per cent YoY in the first 11 months). APE is the sum of the initial premium on new annual-premium policies, plus one-tenth of premia on new single-premium policies.

In FY21, the first full year since the Covid pandemic, life insurers recorded new business growth of 7.5 per cent, with private insurers growing at 16 per cent and LIC at 3.5 per cent. In FY20, the life insurance sector witnessed 20 per cent growth, with LIC outperforming the private sector, by growing at 25.17 per cent. The private insurance sector grew by 11 per cent during the same period.

Kotak Institutional Equities in its research report has stated that it expects large insurance companies to deliver 15-18 per cent medium-term value of new business margin (VNB) through a combination of multi-product and multi-channel strategies, driving better growth and margins.