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COVID-19 changed the way a lot of us look at our life and health, and this not only changed our outlook but it also changed our behavior towards certain products and services. That being said, the impact of COVID-19 was much more prominent to the life insurance sector in India. Let us learn about the top 5 notable impacts of COVID-19 on the life insurance sector in India.
1.) Reliance on digitization and technology: As masks became mandatory and social distancing became the norm, the insurance industry followed suite. As per an IRDAI regulation, life insurance companies were instructed to limit people to people interactions and focus on incorporating contact less forms of communication. For instance, as per an IRDAI regulation, insurance companies were now instructed to stop sending physical copies of insurance policies to customers. Soft copies through email were encouraged.
Further, there was an advent of digitization that led to online verification of identity and address proof through online portals and mobile apps. Lastly, even payment of insurance premiums was encouraged to made through online and contact less mediums. This reliance on digitization and technology has led to a more cost efficient insurance product.
2.) Increase in demand in both health and life products: As per the IRDAI, there has been a fantastic growth of 32% in life insurance policy sales from June 2021 (1,606,343 policies sold) to June 2022 (2,132,823 policies sold). This increase in life insurance policy sales was fueled by the increase of fear in the general public due to the COVID-19 pandemic. This trend of growing life insurance sales is likely to continue going into 2023 and beyond.
3.) Reduction in invest-able income: The increase in life and health insurance sales have had an inverse effect on the invest-able income in the short term. This is because as people are dealing with the rising costs of insurance premium, they have lower residual invest-able income.
4.) Alterations in life insurance underwriting: Life insurance companies have generally taken a more cautious approach when it comes to underwriting life insurance policies post the COVID-19 era. This is done by increasing application scrutiny and asking potential policyholders to undergo a battery of health tests before disbursing a life insurance policy in their name.
5.) Increased penetration of insurance products: India’s life insurance penetration was a lowly 2.82% in 2019, this was far lower compared to the life insurance penetration in countries like USA (52%) and UK (32%)
That being said, the COVID-19 pandemic at least pushed India’s life insurance penetration to the close to 3.2%, which is near to global average.
Frequently asked questions
Yes, penetration increased from 2.82% to 3.2%.
Top 3 Examples of digitization include: