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Home / Markets / Mark To Market /  Covid-19 second wave hits life insurers’ business but outlook is better

India’s private life insurers’ business growth has taken a blow once more this year due to the second wave of covid-19 infections, but may soon see a pickup June onwards as state governments lift restrictions in a phased manner. After all, a pandemic is reason enough for Indians to think seriously about life insurance.

Data from the regulator showed that retail business growth for private life insurers was 5% in May on an annualized premium equivalent (APE), while government-owned Life Insurance Corporation of India (LIC) showed a contraction of 22%. But even though the growth may look decent in the wake of the second wave for private insurers, it is largely due to a low base. Recall that May last year saw retail APE shrink by 32%.

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But since year-on-year (y-o-y) growth has a noise of base effect, a two-year compound annual growth rate (CAGR) may be a good metric to assess the industry’s growth. Here too, the picture is grim. On a two-year CAGR basis, private life insurers have witnessed a 16% contraction in retail APE. LIC reported a 13% contraction.

On the face of it, this goes against the logic that a pandemic makes individuals quicken their decision to buy insurance given the threat to health and life. But it should be noted that insurance companies saw a swift recovery in the past few months owing to lifting of restrictions.

Ergo, the contraction in business or a decline in growth for some insurers is more because of operational restrictions. Further, during this second wave, insurance companies have been more careful about the health of their agents and employees and restricted customer service to just virtual and online means. This has its own challenges in garnering new business.

That said, large private life insurers such as HDFC Life Insurance Co. Ltd and ICICI Prudential Life Insurance Co. Ltd have seen a decent recovery in business. A strong digital presence has been behind this success, although newer product launches have also sparked interest among customers.

Analysts believe that since the first quarter is typically weak for life insurers, there is enough opportunity to boost growth once restrictions are lifted gradually. “As covid-restrictions have begun to ease with declining new covid cases, June is showing a better sequential trend. Also, the first quarter of the fiscal year is generally the smallest for life insurers (in terms of APE at 15-16%), so the full year impact from lockdowns should be limited," analysts at Jefferies India Pvt. Ltd wrote in a note.

Motilal Oswal Financial Securities Ltd believes that the growth pickup would be broad-based with non-participatory products, and margin-friendly protection products continuing to grow strong and market-linked products staging a recovery.

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