Business volumes of all life insurance players hit in Q1 FY21

Upturn expected in future as life insurance gets seen as a risk cover

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The business volumes of all the life insurance players in India were hit in Q1 of FY21 on account of the lockdown impact leading to reported declines in their total Annual Premium Equivalents (APE) since March 2020.

Overall, in Q1 FY21, life insurers, with the exception of Max Life, reported a 30–44 per cent plunge in total APE, affected by a sharp decline in ULIP sales across insurers. On the other hand, Max Life reported a 4 per cent decline in the total APE as per a recent report by Motilal Oswal Financial Services.

Among the business segments of all the life insurers, individual protection trends remain strong, rather than a savings linked investment product. That means life protection products such as term insurance gained momentum. 

The report further states that due to the April-May lockdown and choppy markets, persistency trends were weak across cohorts as customers utilized the grade period in making renewal payments. Among the segments, decline was seen in persistency in ULIPs, while improving trends were observed in protection.

With the unlocking underway and a gradual return of normalcy, most insurers have now indicated that renewal trends are gradually picking up and better trends are expected in the coming quarters. Overall, the share of market linked savings products was significantly higher in the total premium mix. 

It is expected that the COVID-19 pandemic will push the importance of life insurance as a risk cover rather than a savings linked investment product. Hence, demand for protection from life insurers is  expected to gain momentum in the coming months. Protection products from life insurers is expected to further momentum as it is a simple product rather than market linked products and can be comfortably bought digitally as it also has an advantage of being compared and bought through digital channels, especially in a world with social distancing norms.

This trend is expected to drive the margin expansion of many of the life insurance players. It is expected that insurers may gain in market expansion through term linked insurance products by increasing the pricing of such products and also by launching new products to neutralize the impact of the re insurance hike.

The report further points out that while cost ratios have improved in the savings business products they remain high in the protection segment. Besides this, rising digital penetration may lead to continued investments in technology platforms to improve customer onboarding, client servicing through chatbots and many other new things. In the near term most of the life insurance companies would focus on  controlling cost in a low business volume environment.

Thus, key focus areas such as controlling discretionary expenses, making cost more variable, and renegotiating branch rentals, is expected to drive improvement. Hence cost metrics would be a key monitorable in the near term for life insurance players. 

During the quarter it was also observed that private life insurance players’ individual weighted received premium (WRP) declined by around 7 per cent YoY in July 2020. However LIC reported a growth of 10 per cent YoY and its market share increased versus private life insurance players.

The life insurance industry declined by 0.3 percent and the overall decline had moderated considerably from the levels seen over Mar to May 2020. Amongst listed players, HDFC Life reported a positive trend with a growth of 12 percent YoY whereas Max Life witnessed a modest decline of 2 percent while SBI Life witnessed a decline of 14 percent YoY. 

The Motilal report also points out that the combined market share of all listed players such as SBI Life, ICICI Prudential Life, HDFC Life and Max Life stood at 63.2 percent on an individual WRP basis as of July 2020.

Among the insurance players Tata AIA, Bajaj Allianz and Birla Sun Life are also getting firmly positioned amongst the 5 to the 7th largest private insurers on individual WRP. 

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