Group term insurance premium rates jump up to 400% amid Covid-19 uncertainty

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The premium rates for group term insurance policies have jumped sharply up to 400% as insurers are grappling with high claim ratios amid rising Covid-19 fatalities. Experts say that with an even younger population getting severely infected, insurers are cautious while assessing the risk going forward.

“The life insurance premiums have gone up by as much as 400%. This is because the Covid second wave has thrown the decades’ old mortality estimates under the bus. India has witnessed almost 10X mortality even in younger age groups. Many life insurance companies have completely stopped taking new business at this time because they don’t know what is the new mortality estimated, and hence how to price the risk.,” said Abhishek Poddar, co-founder and CEO of Plum Benefits, which helps organisations manage employee health insurance & benefit plans.

Experts say the premium is based on claim experience during the last 3 years. For new clients, which are taking a group term policy for the first time will be costlier than old clients.  According to S K Sethi Director Ria Insurance Brokers, “During 2010 -21 there are instances where the claims have gone up by 300% to 400% due to normal deaths as well as Covid deaths. We have come across a case where on the premium of Rs 35 lakhs claims lodged are Rs 125 lakhs. In this case deaths during 2 years prior to 2020 -21 were at 70%. We in Ria Insurance Brokers are foreseeing that the insurer will come up with the figure of Rs 85 lakhs and will not like to lose the client, which they have been serving for the last 4 years. In case this was the first year of the insurer with this client then instead of Rs 125 lakhs the premium might have got fixed at Rs 105 lakhs as insurers know that the pandemic will not continue for a long time .”

Group term insurance plans cover a large number of people without any restrictions. Being a highly competitive product category its premium rates remain low. Naval Goel, Founder & CEO of PolicyX.com agreed, “There is a significant increase in the group term insurance premium. There is an approx 20%-25% average increase in the premium prices for group term insurance premium in the last year. But the average hike varies from company to company.”

Increasing  awareness

The rapid rise of Covid-19 cases has made employers worried about the well-being of their employees but still many are not able to buy cover for their employees. “In contrast, both individuals and companies have become more aware of the importance of life insurance cover. Unfortunately, the users are not able to get life insurance cover at the time they need the most,” said Poddar.

Goel added, “Not all insurance companies have stopped offering this. There are a few companies that are still offering group term insurance plans but considering the effect of the pandemic which has shot up the mortality rate drastically, insurance companies have started tightening the underwriting of their policies such as the strength of a group term insurance has been reduced to 50 only to reduce the number of claims or there is an increase in premium prices.”

Going Forward

Life insurance with a sum assured above Rs 10 lakhs is generally insured by reinsurers. Sethi said, “The premium that was charged during 2017 to 2020 was very aggressive low rates. The rate of Rs 74 for a sum assured of Rs 1 lakh was really an attractive rate. With claims during 2020-21 at a higher rate, the reinsurers in the world market have incurred losses and many have withdrawn themselves. Let the Covid be under control in near future then we are sure that market will improve. Re insurers will be back and the rates will soften.”

Having said that, though Covid cases have now started to decline, there is still uncertainty relating to Delta-variant and how the third wave of Covid-19 will hit the country. On Wednesday, India reported 54,336 new Covid cases and 1,321 deaths as per the Union health ministry. Madhya Pradesh recorded its first death due to the Delta Plus variant while Maharashtra reported over 10,000 cases again.