Impact of COVID-19 on Life Insurance and Life Insurance Policy Premium

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The spread of COVID-19 has thrown a curve ball to the lives of people across the globe. The virus rolling down the hill has crushed businesses and lives all around the world. Its impact can be seen not only on a micro-level with the lives of individuals disrupted left and right but also on a macro level with the economies of most countries struggling to keep their heads above the crisis. Several different industries around the world are facing challenges that were unforeseen. One such industry that has had to brace itself up for a head-on collision is the insurance industry. 

The catastrophe of coronavirus has not only created immediate challenges but also created many long-term problems that the insurance industry will have to swiftly find solutions for. Statistics show that the spread of the virus and the subsequent pandemic-induced lockdown has caused the life insurance industry to lose around 4 million policies as well as the loss of life insurance policy premium of around 45,0000 crores. 

The prolonged uncertainty surrounding these times of crisis can assure us that life insurance companies and the life insurance policy premium are going to continue to face both long term and short-term challenges in maintaining the continuity of business.  

Let’s discuss the manifold impact of COVID-19 on insurers as well as the economy and life insurance companies as the ongoing pandemic continues. 

Life insurance policies can be risk term policies, savings policies, or have investment purposes for some people as they provide guaranteed returns in most cases. The coronavirus’ impact will be felt across the board but this impact will be felt for different reasons by different categories: 

Investment-linked Insurance Policies

With the economies of most countries struggling to survive the pandemic, the stock market has taken a huge hit. The fluctuating trends have reduced the consumers’ confidence in the market. As a result, not many consumers are willing to spend their money on new policies. On the other hand, the existing customers are being advised to stay put and wait for the market to stabilize in their favour rather than redeem their investments prematurely.  

Term Insurance Policies

It is often seen that a crisis stimulates people to increase their insurance coverage. COVID-19 has induced a greater awareness towards protecting oneself as well as protecting one’s loved ones from the unpredictability of life. As opposed to term life insurance, pure life insurance seems to evoke a renewed interest for people and because that is a market that offers an online platform for possible buyers, it should see an increase in demand in the coming months.  

At the same time, because people’s livelihoods and income have destabilized during the pandemic, it may translate into a form of reluctance in booking higher coverage when it comes to life insurance. The atmosphere of uncertainty, the volatility of the market as well as the declining interest rates have made an average life insurance consumer much more cautious. Along with that, pure life insurance covers require mandatory medical tests and since people are hesitant to go to the hospitals and test labs during the pandemic, the sales activity is definitely going to see a downward trend. 

Insurance with Long-term Savings

While the uncertainty of the pandemic year will make long term savings seem like an allusive option, the policy providers will find it difficult to cash it in with the interest rates dwindling in the market. At the same time, liquidity might garner a renewed interest in people and thus, the long-term pension products might gain a sea of new customers. Hand in hand with these changes, commutation might also go up, resulting in a declined interest in long-term products. 

Operational Impact of COVID-19 on Life Insurance and Life Insurance Policy Premium 

Encouraging Life Insurance Business and Risk Associated

With the imposition of strict social distancing norms, activities that were conventionally performed in person have been invariably restricted and complicated. Interactions with insurance agents, medical examinations, and so on can no longer be performed like before and there might be a need to find a different and unique solution to this problem in today’s times. 

Insurance companies might have to reconsider their application procedure altogether in order to increase their sales. Companies might also want to find a way to provide a temporary cover prior to the medical exam or tie-up with those vendors that can assure a safe medical examination whilst following the strict COVID-19 guidelines. 

Furthermore, as the consumers face difficult times financially since many have completely lost their source of income while others struggle to get by somehow, the demand for new life insurance products might decline. At the same time, the excessive market volatility and loss of employment will hamper the capacity of many to regularize their life insurance policy premium.  

Regardless of all these factors, as the economy slowly revives itself, people will be stimulated to recognize the value of life insurance products leading to an increase in their sales. The responsibility of spreading awareness for the same lies on the policy providers. The companies should take upon themselves to monitor consumer activities, demands, and requirements to take their business to newer heights amidst the pandemic. 

Payment of Premiums

People during the pandemic have restricted their travels, reducing the use of automobiles during the lockdown. The auto insurance companies have ensured to offer some relaxation to their customers through partial premium credits like discounts on the renewal of premiums. Life insurance companies usually offer a certain grace period on the life insurance policy premium, companies might have to reconsider offering some additional deferrals. 

Until the economy of the country regains its momentum, life insurance providers might see an increase in the lapses of policies because people are unable to pay or choose not to pay their life insurance policy premium in these troubled times. In order to withstand this policy lapse, companies should attempt to identify those policyholders who are likely to buy insurance once again as the situation stabilizes, thereby generating new business. 

Processing of Claims

As the whole world has gone virtual in the face of the ongoing pandemic, it has surely impacted the ability to process claims. There is an urgent need to increase the capacity of life insurance companies to process the claims virtually for an unforeseen period of time. 

Economic Impact of COVID-19 on Life Insurance and Life Insurance Policy Premium 

The coronavirus has wreaked havoc on the financial markets all over the world, thereby having a considerable impact on the life insurance companies. The credit spreads have broadened, the interest rates have significantly declined and at the same time the implied volatilities have escalated. Each of these changes has an impact on the fixed income of the individuals as well as the products life insurance providers sell, thus creating balance sheet volatility.  

The decreased sales of life insurance products, as well as the unwavering behaviour of the policyholder in these uncertain times, challenges the ability of life insurers to enhance investment opportunities.  

What Can be Done?

The life insurance providers need to garner the trust of their customers in these volatile circumstances. Here are some targeted activities that can help attain a consumer-friendly experience:

  • Covering COVID-19 under health insurance schemes
  • Offering fast-paced services to those who are exposed to COVID-19 due to their occupation
  • Opting out of rate increases for life insurance policy premium
  • Offering relaxations on preferred hospitals during hospitalization
  • Offering an extended date on claim-filing and the payment of life insurance policy premium  
  • Ensuring that communication with customers is seamless and transparent so that they are aware of the policy changes
  • The claim-filing or application procedures should be digitalized 

There is an urgent need for life insurance policy providers to adapt themselves according to the changing world ravaged by the Coronavirus crisis in order to deliver exceptional services to their customers who are confused, troubled, and suffering. Moulding themselves to ace the virtual world, these companies need to be agile for the purpose of making the most out of the changing environment as well as customer expectations.  

The pandemic has left all of us shocked and it has certainly changed the way consumers look at insurance products while at the same time pushing insurance providers to replace the now redundant products with re-imagined product strategies. There still lies the opportunity to re-envision the world of insurance and instil confidence in the consumers for greater trust and security.

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