Insurers' provision pool balloons as fatalities spike in second Covid wave

Claims in 2nd wave were 3-4 times the volume seen in first wave, says an insurer

The impact of the second wave, which saw higher fatalities than the first one, coupled with elevated levels of claims that life insurers have received in Q1, resulted in insurers increasing their provision pool. This is over and above the amount they had set aside at the beginning of the financial year.
 
Insurers, in the April-June quarter of FY22, have seen a huge spike in death claims due to Covid. And, experts said, Covid death claims in Q1 are higher than the cumulative Covid-related death claims in the entire FY21.
 
The overall claims burden has also increased due to the mounting Covid claims, they said. 
 
Two of the largest private-sector life insurers — ICICI Prudential and HDFC Life — which came out with their first-quarter numbers, have set aside more provisions, anticipating higher Covid-related death claims in the next three months.
 
HDFC Life has set up an extra reserve of Rs 700 crore to service the additional claims. Similarly, ICICI Prudential has increased its provisions to Rs 500 crore at the end of the April-June quarter from Rs 332 crore, which it had set aside after Q4 of FY21.
 
According to HDFC Life, in the quarter gone by, it witnessed a steep rise in death claims with peak claims in the “second wave” at around 3-4 times the peak claim volumes in the first wave.
 
“We paid over 70,000 claims in Q1. The gross and net claims provided for amounted to Rs 1,598 crore and Rs 956 crore, respectively,” the company said.
 

ICICI Prudential paid almost Rs 500 crore as Covid-related death claims in Q1 of FY22, which is almost 2.5 times the amount it paid out for Covid-related death claims in FY21.
 
Satyan Jambunathan, chief financial officer (CFO), ICICI Prudential, told Business Standard, “For Q1 of FY22, claims due to Covid-19 were to the tune of Rs 500 crore. Given the severity of the situation, we thought it prudent to revise the provision amount to Rs 500 crore. We believe as long as Covid-19 related claims remain within the boundaries of Rs 1,000 crore, that is around 5 times that of last fiscal, we will be fully provided for. Given the circumstances, claims come in with a lag. So, over and above the provisions for Covid-19-related claims, we are carrying an additional Rs 380 crore of provisions for delayed claims not related to the pandemic.”
 
Insurers had anticipated this situation and had set aside higher provisions at the end of Q4 of FY21. HDFC Life had set aside Rs 165 crore, which is four times higher than what it had set aside in FY21. SBI Life had set aside Rs 180 crore.
 
But, given the fact that the second wave saw an alarming rise in fatalities due to Covid, the firms had to revise their provision pool, which dented profits of two of the three listed players.
 
SBI Life has not come out with its quarterly result. HDFC Life’s net profit in Q1 of FY22 was down 33 per cent over the same period last year and ICICI Prudential reported a net loss during Q1.
 
Although the second wave turned out to be much worse than what the industry had anticipated, insurers, so far, have not figured out if they would need more provisions in case a third wave occurs.
 
Commenting on the possibility of a further revision in provisions, Jambunathan said, “...in our target market, we think vaccination progress has been quite robust and rapid. We believe the rest of the year will be much better compared to the first quarter.”
 
Rushabh Gandhi, deputy chief executive officer (CEO), IndiaFirst Life Insurance, said, “We have seen a substantial increase in Covid claims in Q1 of FY22 compared to FY21 and hold adequate reserves to meet the current increase in claims.  We believe that the worst is behind us. With the vaccination drive in full swing, we believe it is early to predict the claim trends conclusively, and thus, the consequent provisioning.”