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Insurance Premiums Going up: A Bane That Can Be a Boon ☂️

COVID did one thing right - teach us the value of insurance. It propelled insurance penetration in India to global levels, in just 1 year; something advertising budgets failed to do as fast.


Life insurance penetration in India went from 2.8% in 2019 to 3.2% in 2020. Doesn’t seem too large, right? Here’s another fact - 44.3% of total premium collected by life insurers in 2020 was from new policies.


But what’s also increased along with the demand for life insurance is the premium on insurance. Read - Life insurance just got more expensive to get (premium is how much you pay as a cost to get insured).


While this may hurt your pockets if you’re still not insured, there are ways of making money on this! Read on!


Insurance is getting costlier

There is an index that measures how much getting a term insurance policy costs - it’s called the Insurance Premium Index, and it is tracked and published by https://www.policyx.com


💡 The Insurance Premium Index, over the last 18 months indicates premiums to have increased by 26%.


Premiums have been increased by every insurance company there is, hikes ranging from 10 to 30%. ICICI Prudential Life Insurance implemented an increase of 10-12%, HDFC Life Insurance raised premiums by 17-30%, and Bajaj Allianz raised term plan premiums by 15%.


Why are premiums going up?

Insurance premiums are going up for several reasons:

  1. Reinsurance got more expensive

  2. COVID increased the death toll

  3. Current mortality rates are being questioned


Reinsurers raised charges by 30-45%

Reinsurance companies raised charges to insurance companies by 30-45%. Wait, what is reinsurance? Skip to the next paragraph if you already know!

A user pays premium to an insurance company. The insurance company pays the user’s beneficiaries a certain pre-decided amount in case the user dies. It can do this because it collects premium from a lot of users, but not all of them die in the tenure of the contract. An insurance company benefits if it has to pay lesser than the premiums collected. But the insurance company doesn’t want to take all this risk up by itself. So it goes to a reinsurer to share the risk. The reinsurer charges the insurance company for the risk - similar to how policyholders pay life insurance companies.

In turn, insurance companies did either/or of going to the IRDAI and seeking permission to raise premiums, and going back reinsurers and negotiating reductions. And that forms a large part of the increase in insurance premiums.


COVID’s role in higher charges

As COVID hit, the death toll globally shot up. This meant insurers and reinsurers would have to bear losses because of higher insurance claims. Death claims in 2021, increased by as much as 40%. With this surge in claims, both insurance and reinsurance companies started increasing rates.


Current mortality rates are questionable

An interesting emerging factor is that reinsurers have noticed a discrepancy between their estimated mortality rate and what is truly happening over the last few years. Poor habits and sedentary lifestyles have resulted in a greater number of people suffering from co-morbidities, putting them at a higher risk of dying during the policy's term. This increased risk is also influencing key market reinsurers to raise the cost of term plans for their insurance companies.


The impact on you

Well, if you’re not insured, your life insurance will cost you more. Despite the multiple rounds of increase, insurance premiums in India are still below the global average. As we move forward, demand, penetration and a readjustment of risk estimates will all lead to even higher premiums. In short, insurance will get more expensive.


However, insurance companies can be a good investment! Why?

  1. The pandemic has increased awareness of life insurance

  2. The pandemic has also resulted in more people acting upon their need to buy insurance; so not just higher awareness, but also higher conversion

  3. Simplified buying has been enabled by digital aggregators, which is further propelling sales

  4. Revenue for life insurance companies will see a boost resulting out of both - an increase in demand, and an increase in premiums

💡 While insurance premiums rise, and your costs increase; you can still make money by investing in the insurance sector!


Insurance exposure in Rupeeting

In our portfolios, we have exposure to the following:

  1. HDFC Life Insurance (Rocketship) - It is one of the most dominant players, with a strong distribution network. It has been seeing industry-leading growth thanks to its balanced portfolio and product innovation. Recent upswing in demand and prices should work well for the stock.

  2. PolicyBazaar (Disruptors) - Online players have been disrupting the traditional agent model for selling insurance (higher transparency, lower commissions). In this disruption, PolicyBazaar dominates with a >90% market share.

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