Covid-19 Impact on Heath and Life Insurance

Ashish M. Shaji

02 Jul, 2020

The Covid-19 pandemic has jolted many industries, and its adverse affects may continue for a significant period. Many countries have been affected due to its impact, and the industries have faced an unprecedented challenge all across the globe. One such industry is the insurance industry.  In this article, we shall assess its impact on health and life insurance.

Evaluating the impact and the key challenges

The response by the industry to the challenges presented by the pandemic is evolving rapidly with this crisis. The insurers have been tirelessly working on strategies that can help them to tackle the impact of covid-19 on health and life insurance after the pandemic.

Some of the key challenges faced in the insurance industry are as follows:

• Lack of involvement of customers

Customers have been unable to visit insurance and intermediary offices due to the social distancing norms and restricted movements. Therefore the industry operations and sales have been affected due to the prohibited mobility.

• Loss of new business opportunities

The issue of providing services like in-person advice, at-home medical examination and obtaining previous medical and insurance history has led to a decrease in the number of applications. Moreover, an increase in insurance premiums and a reduction of annuity rates could be an increased possibility considering the plummeting investment returns and a decrease in underwriting profits.

• Contract servicing

Insurance and retirement benefit providers have reported a spike in inquiries and transaction processing for financial as well as non-financial events. Tele-consultation has become the new normal and is expected to continue even after the Covid-19 crisis.

• Delay or defaults

There is a likelihood of delay or default in premium payments, pension contributions and in policy loan repayments. Pension accumulations may also be affected due to absence from work, lay-offs and partial employment. Due to the lukewarm performance of the underpinning investments in financial markets, retirees with unit-linked pensions may collect lower pension corpus.

• Claims

In the sector of health and life insurance, insurers are expected to experience a rise in claims due to the pandemic related deaths and sickness. Insurers may reject the claims that invoke the “force majeure” or force of natural clause, thereby leading to a possibility of an increase in litigation. The restriction on movements may hinder the eligible on-site claim investigations, thereby leading to a delay in turnaround time and hampering customer satisfaction.

Impact on Health and life insurance sector

In this segment, we shall assess the impact of covid-19 on health and life insurance sector one by one.

• Health insurance

According to a report, with a view to removing any form of misconception regarding the applicability of health insurance policies to cases of covid-19, the IRDAI (Insurance Regulatory and Development Authority of India) has asked the insurers to accept covid-19 related claims under the present health insurance policies. As the risk of covid-19 is not priced under the active products, these claims are expected to put additional burden on books of insurers if they are treated outside government hospitals.

Community transmission may lead to an afflicted population across social and economic classes and may result in claims growing as big as in crores.

One can expect a considerable number of claims in the Ayushman Bharat scheme^[1] as compared to the private health insurance companies owing to the widespread coverage. The fact that isolation of hospitalized patients is necessary to prevent the spread in the community, the cost of setting up isolation wards will create an additional burden which must be borne by the government. As per the report, many insurers are running the scheme with a PPP agreement with the government and shall require recalibrating their financials. 

• Life insurance

According to the report, the life insurance sector deals with the pure risk term policies, investment-linked policies and saving policies with guaranteed / semi-guaranteed long term returns. There may be impact across the board, but the reasons may be different.

Term insurance: Pure life covers are expected to have a renewed interest, and they may be an increase in demand, considering a large online market. However, due to the instability in cash with people, they may not take high insurance covers as top insurance covers involve medical tests which they may be reluctant to give.

Investment-linked insurance: Consumer belief in the stock market may go down, and therefore only a few customers would start with new policies.

How is the Health and Life insurance sector expected to thwart the adverse effects of the pandemic?

The health and life insurance sector insurers must perform certain activities that can protect the interests of the community along with building trust in the society.

Some of the activities that they can employ are as follows:

• Immediate offering to enrol more people in health schemes;
• Those who are exposed more to the threat of Covid-19 pandemic must be offered more coverage and fast track services;
• There must be relaxation in out of network, network and preferred provider restrictions for hospitalization;
•  The claim filing period must be extended;
• There must be relaxation in preauthorization and certification rules;
• The rate increases, premium payments, renewals and cancellations must be deferred;
• Waiver of co-payment obligations;
• There must be an institution of transparent communication process for all customers so that any change in the policies or operating procedures can be communicated; and
• The paperwork in the insurance sector with regard to underwriting and claim processing must be replaced with digitalization, making everything available through the internet.

Conclusion

When the entire humanity is facing this unprecedented crisis, how the insurance industry, especially the health and life insurance sector, responds to its customer would determine where the business is headed. Business agility, innovation, customer engagement, swift technology adoption and employee motivation is set to be the key to thrive in the midst of the pandemic.

Also, read: Use of BlockChain in Insurance Sector: Benefits and Challenges