Second wave of Covid-19: Rising death claims keep insurers on tenterhooks

An alarming rise in deaths due to Covid in the second wave of the pandemic has kept life insurers on tenterhooks. A rise in fatalities will eventually lead to an increase in Covid-related death claims, denting profitability.
 
Most life insurance companies have set aside provisions for such claims, over and above what they had set aside during the first wave.
 
Despite higher provisions, the second wave has come as a shock to the life insurance industry. Many believe they may need to increase their provisions, depending on the severity of the impact of the wave on the claims front. However, there will not be any significant impact on their solvency, observed experts.
 
Satyan Jambunathan, chief financial officer (CFO), ICICI Prudential Life Insurance (ICICI Prulife), said, “Currently, incoming claims are higher than what we saw at the peak of the first wave. It is quite likely that we will hit last year’s Covid death claims numbers in a month or two. With slowing infections and pick-up in vaccination, we might see the death toll falling in the second half of 2021-22 (FY22).”
 
“Overall in FY22, Covid-related death claims maybe 1.5-2x the claims we received in 2020-21 (FY21). If we see the emerging claims situation is a little higher than our estimates, we will add a little more to the provisions,” added Jambunathan.
 
ICICI Prulife has set aside Rs 330 crore as provisions for Covid-related death claims in FY22. Among listed players, it has the highest provisions.
 
HDFC Life Insurance (HDFC Life) has set aside Rs 165 crore and SBI Life Insurance Rs 183 crore as provisions for Covid-related death claims.

 
Niraj Shah, CFO, HDFC Life, said, “Over the course of FY21, we settled over 290,000 death claims, including Covid claims, resulting in payouts in excess of Rs 3,000 crore.”
 
“Based on our actual experience in FY21 and after factoring in the latest mortality trends across business and customer segments and the geographic spread of Covid 2.0, we have set aside an additional reserve of Rs 165 crore for FY22. We will continue to review the adequacy of this reserve through the course of FY22. Our approach will be to monitor the overall mortality claims in excess of our estimates,” added Shah.
 
“At this juncture, I will say it is a concern, but we need to wait and watch because the reporting of claims is somewhat delayed. We will increase our provisions and play it safe because our job is to pay claims,” said Tarun Chugh, managing director and chief executive officer, Bajaj Allianz Life Insurance.
 
Although insurers made provisions for Covid in FY21, anticipating a rise in death claims, they ended up paying more than they had envisaged. Hence, they set aside more money this time around to cushion themselves against probable claims.
 
According to a report by Motilal Oswal, while the total Covid-related deaths reported in FY21 was 163,000, the fatality count has already touched 152,000 in FY22 so far.  “The claims experience is thus, likely to stay adverse over the next few quarters - all the more due to delays in the reporting of claims. The stringent actions announced by several state governments have helped lower the infection count. The pick-up in vaccination rates may prevent another wave of this magnitude. Claims in the first half of FY22 may easily surpass the total claims seen in FY21,” it said.
 
Insurers said there is not one particular product segment that has taken a disproportionate hit during this pandemic period. Rather claims have gone up across all product segments in their portfolio. Whether this will subsequently lead to a price hike in life products is what insurers are divided on.  In the term portfolio, reinsurers have hiked their rates at least a few times last year, resulting in term products become dearer for customers. But experts have said it was warranted, else the portfolio would have become unsustainable for reinsurers, given India has one of the cheapest term price rates among developed countries.
 
According to the Motilal Oswal report, given that individual term products are of longer tenure (20–30 years), the adverse claims experience due to an event does not necessitate an immediate price change. However, group term products, which are annually renewable, may see price revisions on higher demand for such products in recent times