Sophiaa
Today as the tally stands, India is the third-worst affected country in the world with a daily fresh count of approx. 70,000 + new Covid-19 cases, this is also the world’s highest in terms of daily count. The month of Aug so far has been the worst since the outbreak of the virus in early 2020. The impact of the virus has been far and wide and not a single industry or trade was spared from its effect either directly or indirectly. The deep impact of global pandemic can be felt in the insurance sector as well. The non-life insurance sector was among the worst affected.
Real estate – Due to the economic slump and the working middle-class income getting adversely affected, the downturn could be seen in the real estate business. People had no choice but to hold or postpone plans to buy new houses and plan possession of new properties. As a relief measure from the apex bank, The RBI, lending banks were instructed to banks rolled out loan moratorium schemes due to the incapability of the customers to pay the loan EMIs. A big chunk of revenue that is generated against Insurance of fixed assets and immovable property, or any other insurance-related to real estate, was directly hit due to the pandemic.
Motor vehicle – The lockdown period saw people’s movement getting restricted completely. In an attempt to stop the spread of the virus the necessary step was taken that kept the people confined to their homes. The vehicular movement was paralyzed, and the sale of new motor vehicles came to a sudden halt. Motor vehicle insurance which is seen as one of the most profit-making entities in the non-life insurance sector got directly hit due to the lockdown and travel restrictions. People were allowed to extend/postpone the period of motor vehicle Insurance renewal by several months. This was a big blow for motor insurance companies who saw almost no new policies being issued during the lockdown period.
Travel – After the lockdown was imposed and the overseas travel got restricted, international flights were stopped. The complete lockdown pan India saw a complete halt in domestic flight movements within India as well. A huge chunk of revenue that is generated against the issuance of overseas travel insurance, which is a mandatory component for overseas travel, was directly impacted. People stopped traveling hence travel insurance business slumped, domestic travel by air stopped, hence insurance components related to the tickets got impacted. The travel insurance vertical of the underwriting companies, which is considered as one of the highest on-demand and high revenue earning sector, was adversely affected.
Due to the global pandemic, the travel industry was the worst hit. Holidays were canceled and travel plans were shelved. With millions of jobs lost in the travel & tourism industry, Covid-19 has taken its highest toll in this vertical where all activity came to a standstill. With no holidays in sight, no insurance policies were sold to safeguard expensive trips of ardent travelers.
Consumer goods – During the lockdown general markets and Malls/showrooms were shut causing a direct impact on the purchase and sale of consumer goods, electronic items, and other durable household commodities. The slump in the consumer market saw a negative demand in consumer goods insurance or renewal of existing insurance policies. The huge consumer market of India is primarily driven by the strong middle class with adequate disposable income to splurge on luxury commodities and consumer durable goods. Significant revenue is earned by insurance companies in this sector.
Health Insurance – This is the only sector that has seen significant growth during the pandemic period. Due to health insecurities and fear of financial distress attached to it, there has been a surge of demand in the health insurance sector. However, India is prevalently an underinsured nation, the private health insurance sector covers about 19% of the population mostly in the urban areas, and about 14% in the small towns and rural areas. Due to the sudden surge is Covid-19 cases the health insurance sector has come under huge stress due to the surge in the number of claims settlement applications. The expenses getting higher and the hospitals regularly contesting the claims with counter-arguments, has increased the woes of the insured consumers. Due to the lack of adequate infrastructure in Govt hospitals, more patents are visiting private hospitals which are far more expensive and unaffordable for the lower middle class, unless covered by insurance. Hence the stress comes back to the insurance companies when the Pvt hospitals charge inflated costs against the treatment of Covid-19 patients.
The IRDAI has issued a mandate to provide coverage for the cost of treatment of Covid-19 under general existing health Insurance policies. But the cost of Covid-19 related treatment was not calculated prior and assumptions were not made by the insuring companies, it is an additional cost burden for the health insurance companies. Due to the huge spike in the number of new cases, the claim settlement burden is only going to get heavier in the coming days.
The IRDAI has also passed orders for the insurance companies to extend the policy lapse period by at least thirty days (as a grace period) for insurance holders, due to the revenue loss incurred by business houses pan India and incapability of the people to pay premiums and renewal amount. This might pose a huge threat to the insurance companies and even a possible liquidity challenge.
