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Home / Markets / Mark To Market /  Pandemic set to hurt life insurers’ growth, protection plans to give buffer

A raging pandemic may have made Indians more sensitive towards insurance, but lockdowns also meant that products could not be pushed as before.

Ergo, India’s life insurers may see traction in cheaper and margin-friendly protection plans that are easier sold online, but poor traction on market-linked products and even traditional policies may sour the year for them.

Insurers, which have been able to increase the share of online sales in their overall premium income, could show better performance than peers.

Analysts expect business growth on annualized premium equivalent (APE) basis to get hit sharply in the first quarter for private-sector insurers. Thereafter, growth would depend on how the recovery seen in June sustains. Data from the regulator showed that the contraction in APE has narrowed to 8.2% in June from as high as 48% in April. Recall that a large swathe of the country was under strict lockdown in April with some states gradually opening up May onwards.

“We are building in a 5-13% decline in APE for large private life insurers and value of new business (VNB) declines of 0-8% in FY21, despite traction in the protection business primarily because we expect a larger impact on ULIPs," analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd wrote in a note.

A downshift year
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A downshift year

Profitability margins have been on an upswing for insurers in the past three years with the top three life insurers reporting sharp jumps in value of business margin almost every quarter. This has been due to a sharp rise in the share of protection plans in the overall portfolio. Growth in protection plans is expected to sustain or even improve, given that a pandemic is expected to increase interest in health and life insurance.

Meanwhile, market-linked products may prove to be a drag due to the drop in incomes. To be sure, the share of market-linked products is high for most insurers even today.

Analysts expect SBI Life to report better growth metrics than the others, while HDFC Life is expected to show margins that trump industry. Shares of insurance companies have seen pressure similar to the broad market in the wake of the pandemic. However, they have performed well in comparison to other financial stocks such as those of banks or non-bank lenders. HDFC Life is an outlier; its shares have recouped most of its losses and are trading close to their peaks in February.

While public sector behemoth Life Insurance Corp. of India has gained market share, private insurers have managed to hold their own. Their share performance would now depend on how much growth they can salvage in FY21.

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