Concerned about falling persistency levels, rising claims and low interest rates, many life insurance companies are set to approach the insurance regulator to find ways to manage these risks.

“The Covid-19 pandemic and subsequent slowdown have impacted insurance companies. New business has dropped and the trend is likely to continue. If the slowdown continues, there will be a drop in persistency levels as people who have faced wage cuts, job losses and business failures will be averse to renewing their policies,” said a life insurance company executive.

He also pointed out that life insurers are facing high mortality claims due to Covid-19-related deaths. Further, the low interest rates could also impact the non-participating portfolio of insurance companies that give guaranteed returns.

“We have to keep a watch on all these issues, as, if these trends are prolonged, it would begin to impact the solvency margin of insurers,” he said, adding that they will discuss with the Insurance Regulatory and Development Authority of India (IRDAI) on ways to mitigate the risks.

Another executive with a life insurance company noted that many companies are facing these challenges during this period of Covid-19-led slowdown and are hoping to discuss it with the IRDAI.

“While the drop in sales and persistency levels are the most obvious impact of the current situation, the sectors is also facing a number of other issues,” he said, adding that it is expected that there could be a revival from the third quarter of the year.

After registering a drop in first-year premiums in previous months, life insurers in the month of July saw positive growth with a 6.9 per cent increase in first-year premiums (year-on-year) to ₹22,986.1 crore.

A recent report by CARE Ratings noted that the sector reported a decrease of 12 per cent in first-year premiums to ₹72,321.5 crore between April and July 2020, from ₹82,146.5 crore a year ago. The overall sum assured too declined by 9.2 per cent to ₹12.6-lakh crore between April and July this year.

Another report by Motilal Oswal said due to the lockdown in April and May and choppy markets, persistency trends were weak as customers utilised the grace period in making renewal payments.

“Among the segments, decline was seen in persistency in ULIPs, while improving trends were observed in protection. However, most insurers indicated that renewal trends were gradually picking up and better trends would be seen in the coming quarters,” it said, adding that overall, the share of market-linked savings products is significantly higher in the total premium mix and so it remains watchful of near-term persistency.

Life Insurance Corporation of India recently initiated a special two-month long campaign for revival of lapsed individual LIC policies.