From FY22, that is, April 1, 2021, term insurance premium rates will become more expensive. This is mainly due to the increase in death claims from Covid-19 as well as the increase in reinsurance rates. And as the increase in the price of reinsurance comes amid the pandemic, insurers are unable to absorb the higher costs.
In reinsurance, there is a reinsurer who assumes part of the risk taken by the primary insurer / insurance company or other reinsurer for the premium charged to the insured. As there is a threat of a second wave of coronavirus in regions such as Southeast Asia (including India), the UK and the US, reinsurers around the world have raised their rates.
Indian insurers’ reinsurance rates rose even before the pandemic
Even before the world saw the deadly virus spreading, Indian insurance companies faced toughening reinsurance rates. And this, while global reinsurers were wary that reinsurance rates in India are lower than the cost of life coverage in European countries, where life expectancy rates are better.
Increase in premium rates only by private life insurers and not by LICs
And what is interesting is that LIC being able to negotiate better terms with reinsurance companies and having the largest market share in the industry, will not increase the premium of its term plans. “Private insurers do not have the option of lowering tariffs with global reinsurers. LIC is able to do so and therefore their premiums are not increased,” said the head of a global reinsurer in India.
Why will the premium for term plans of private insurers be increased?
For the broader risk coverage offered, insurance companies or insurers pay a reinsurance premium to reinsurers to be partially covered or the risk component is partially shared between the primary insurer and the reinsurer in terms simple. And in a scenario where reinsurers raise rates, the end buyer of the insurance policy must pay a higher premium price.
Almost all reinsurance contracts are renewed between January 1 and April 1 of each year. During the current financial year itself, the premium rates for term plans were increased from 15% to 20% after the reinsurance rates for these policies were revised.
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Article first published: Saturday, March 13, 2021, 9:59 a.m. [IST]