Life insurers see 5-10x increase in Covid claims amid second wave of Covid-19

With a high number of deaths reported during the second wave of Covid, insurance companies are facing the challenge of a higher claim ratio. The high mortality rate has increased claims for life insurance companies by 5-10 times for April 2021. According to statistics, 1.9 lakh Covid-related deaths have occurred since April 1, 2021, which is already 17% higher than the total lives lost during FY21.

“Life insurers, while making Covid reserves last year, assumed 50–100% higher Covid-related deaths for FY22. Our analysis shows that reserves made by them can cover 1.5–2x the Covid-related deaths in FY21,” said a report by Macquarie.

The rise in claim ratio will affect the profitability of these companies, which in turn can lower the embedded value of life insurers. Macquarie report has stated that the embedded value of HDFC Life, ICICI Prudential Life Insurance, and SBI Life can be affected by 2%, 3%, and 4% respectively if Covid-related claims for FY22 is four times of FY21.

“The bigger worry for us could be the possible impact on VNB (value of the new business) margins, as reinsurance companies bear the bulk of the pain since more than 70–80% of retail individual protection is usually reinsured. As a result, reinsurance rates could go up, affecting VNB margins,” the report said.

“While near term outlook could be challenging, we are structurally positive on life insurance players and believe a 20% VNB CAGR (compound annual growth rate) is sustainable over the longer term,” Macquarie Research analyst Suresh Ganapathy said in the note

Life insurance companies are reeling under the impact of increased claims in term insurance due to pandemic. Therefore insurers have started making changes in their underwriting policies. According to which for proposers have been asked to attach vaccine certificate with the proposal form. It means that no policy will be issued if the proposer has not gone in for vaccination.