Term insurance policy premium likely to get costlier

Term life insurance premiums are likely to increase as reinsurers have revised their premiums upward. This is the premium which life insurers have to pay for re-insuring their risk.

Reinsurers increased their premium rates as the number of claims have been rising over the past year. The rise in re-insurers premium is primarily due to an increase in mortality rate during the covid-19 pandemic. Thus, with the increase in the reinsurers' premium rates, insurers may raise the premium of term life insurance policy for buyers.

According to the earlier reports, premiums for term insurance plans were expected to rise by up to 40% in 2021 as insurers take into consideration the emerging risks.

Sonia Notani, CMO, IndiaFirst Life Insurance Company Limited, said in the last 12 months, the pandemic has had an impact and the number of deaths has gone up globally. Reinsurers have a well-spread portfolio across geographies, enabling them to cushion the impact of any calamities or large incidents causing death. “However, this is a unique situation where the impact of the pandemic is global. This has impacted the mortality assumptions made by the reinsurers, causing them to re-assess the risk and modify assumptions," said Notani.

Term insurance is a pure risk cover payable only in case of death of the life assured. Currently, the cover is extremely economically priced given that the key influencing factor is the expected mortality risk on the portfolio or in simple words, the incidence of loss due to death, an industry source said.

Reinsurers have become cautious of the decline in rates over the past few years. Karthik Raman, CMO and Head – Products, Ageas Federal Life Insurance said that the term life insurance market had become very competitive a few years ago which had led to a drastic drop in the premium prices by life insurance players backed by reinsurance. Reinsurers and insurers had made aggressive assumptions in terms of mortality which had led to term insurance premiums being priced low. “However, an adverse mortality experience over the past few years, which has intensified due to the Covid-19 scenario has led reinsurers to increase their rates resulting in an upward revision of term insurance premiums," he added.

According to Bharat Kalsi, chief financial officer, Bajaj Allianz Life, "Across the life insurance industry, term plan premiums are being revised due to several reasons. One of them being the reinsurers revising their prices based on the actual mortality experience vis-a-vis what was expected. Despite this rise, I must add that term plan rates in India continue to be amongst the most affordable, even compared to markets like USA or Singapore."

Moreover, as per the industry sources, many life insurers are still not considering increasing the term insurance premiums soon.

Source: Live Mint