Term Plans to Remain Popular Despite Premium Hike_by Gopal Kumar

There are two generally accepted indicators of mortality protection gap - sum assured as % of GDP and protection gap (ratio of protection lacking/protection needed). On both the parameters, insurance protection in India remains grossly inadequate.

For every $100 needed for protection, only $7.8 of saving and insurance is in place for Indian households, leaving a mortality protection gap of $92.2, says a study by Swiss Re. The total sum assured accounts for 70% of India's GDP, which is much lower than many other countries.

However, a silver lining is that awareness and appreciation about Insurance as a personal financial risk mitigation tool is gaining currency.

Among various life insurance plans, term plans with triangle of protection – Term, illness & disability have been gaining currency due to optimum premium, income tax benefits and overall peace of mind with regard to financial security. The recent launch of standardised product Saral Jeevan Bima will further enhance the reach of protection plan in the intended target market.

There has been a significant increase in demand for term insurance, no matter if they will get costlier in the new fiscal year. The share of the protection business has grown for many of the major players in the industry. The share of protection business rose to the level of average 10% from 5% 12-18 months ago. The online term market has grown by 30-40% during the last 12-18 months. The increase is largely attributed to increasing awareness about insurance due to increased economic uncertainty during the coronavirus recession and also mortality risk.

The term plan's growing importance is due to many factors:

• Term Insurance Plan offers the highest life cover for a nominal premium. Premium of term plan is lower than other insurance plans as It provides only life protection.

• Term plan can be an effective protection for loans such as home loans, car loans etc. The proceeds from the insurance may be utilised to pay off outstanding loans and ensure that the financial burden of these liabilities does not fall upon dependents.

• The innovation in term plan design over the years with bundling of other additional benefits such as critical illness and disability. The innovation has also been in the payout structure to align to the emerging customers' financial need – including regular payout and joint life and legacy planning.

The premium rates for protection products have risen by about 25-30 % over the last 18 months after several reinsurers increased rates for underwriting pure protection business. Reinsurance rates increase were on the cards even before the covid pandemic with the rationale that the rates were lower than even developed countries and were not sustainable. The increase in premium rates would vary from company to company depending on their product mix, sales strategy, extent of cross subsidization and pricing approach.

The lower rates what we witnessed over the decade was because of the unsustainable competition and professional judgement/assumption with regard to mortality, future mortality improvement and persistency, The effectiveness of controls including medical and financial underwriting and scale of business do also have impact on premium rates.

Premium rates in India are lower than more economically developed countries while India has lower life expectancy than the developed countries

Premium rates comparison

source: www.actuariesIndia.org and www.worldbank.org

The term insurance in India is decade old story and advent of online term insurance products indeed changed the context and it witnessed immense growth. India's insurable population would increase in future and this will lead to Increase in need for protection products due to increase of nuclear families, sedentary lifestyles and higher financial liabilities. A number of initiatives on digital distribution and underwriting process by the insurers would also add to supply side convenience

We are still an evolving and innovative market with ultimate mortality experience yet to emerge and there may be some trend to understand the appropriateness of rating factors used for pricing and probably a differential pricing may be a reality soon.

The author is Fellow of Institute of Actuaries of India,

Member of Investor Education and Protection Fund (IEPF) Authority, Government of India.

(The views are personal.)