A combination of factors like reduction in premium (new and renewal), constant fixed costs, increase in claims outgo, reduced investment income and the economic slowdown are going to make life tough for non-life insurers, said industry experts.
The situation may also accelerate existing promoters trying to exit their insurance ventures while newer ones buying them out.
The coronavirus has not only snuffed out thousands of lives across the globe, it has also impacted the economy of several countries to which the life lines non-life insurers are connected to.
“The Covid-19 will surely have its negative impact on the Indian non-life insurance industry as the lockdown is expected to continue in one way or other. There will be a drop in the business for the first quarter while improvement is expected in the second quarter of FY 21,” G. Srinivasan,Director, National Insurance Academy and former chairman-cum-managing director, New India Assurance Company Ltd told IANS.
“Even now some promoters of insurance companies are wanting to exit their insurance business by selling their stakes to those who are willing to buy. The Covid-19 may accelerate that process,” Srinivasan added.
The National Insurance Academy has come out with a report on the impact of Covid-19 pandemic on the Indian non-life and life insurers. According to Srinivasan, no new capacity is expected to be added with negative consequences on the engineering portfolio. Similarly, marine cargo or cargo transit cargo insurance would see drop due to reduced transport movements and economic activity. Similarly, policies like event cancellation would be affected for some time now.
“With cash flow being a problem for medium sized corporates we are seeing them taking policies for short periods and not the annual ones,” a senior official of a private insurer told IANS preferring anonymity.
“The micro, small and medium enterprises sector is likely to be seriously affected and this could potentially reduce their premium paying ability,” Srinivasan added.
With the threat of pay cuts and job losses also being spoken about, people going for other kinds of insurance covers like home, health are also likely to be affected.
“Retail business, which largely consists of Motor and Health business, is expected to behave differently. Automobile sales will continue to fall due to the pandemic situation, further to the poor performance in the automobile sector in the previous year,” the National Insurance Academy report states.
“There will be a dip in motor insurance due to drop in sales of new vehicles. There will be demand for health insurance policies due to Covid-19,” Saurabh Bhalerao, associate director (research), Care Ratings told IANS.
The only solace for the general insurers is the recent premium hike in the fire insurance portfolio owing to the pressure from reinsurers.
According to Srinivasan, the fall out in corporate business due to economic slowdown would be more than compensated by the premium hike in fire insurance. The insureds may also demand a reduction in fire insurance premium as their units were not operational for more than a month. Srinivasan said even the airlines can demand premium refund for “lay-up period’ as their entire fleet has been grounded for more than a month.
On the claims side there is good and bad news for the insurers. The good news is that claims under motor and property business lines may come down due to total or partial lockdown.
The bad news is that health insurance claims out go due to Covid-19 may increase with more infections happening this fiscal, Srinivasan said.
“A total of about 790 claims amounting to about Rs 15.75 crore for Covid-19 have been lodged with the non-life insurers across the country till April 30,” an industry official told IANS.
With most of the general insurers are posting net profits due to investment income, the slump in the stock markets and the drop in the interest rates will impact their earnings. The Covid-19 has its impact on the stock markets and in turn on the general insurers, said
According to National Insurance Academy’s report, companies whose solvency is borderline would be under pressure to bring in more capital.
In this regard, the Indian insurance regulator has advised all the industry players not to declare dividend out of the FY20 profits.