Supply-side constraints weigh on retail protection biz for life insurers

Persisting supply-side constraints because of the Covid pandemic and the rate hikes taken by reinsurers over the past two years have impacted growth of the retail protection business of life insurance companies. Yet, the protection segment, overall, has witnessed decent growth, mainly because of strong traction in the credit life business, buoyed by disbursement from banks and NBFCs. 
 

Two of the largest private sector life insurance companies, which announced their earnings recently, have witnessed a contraction in their retail protection business. While HDFC Life’s saw a 34 per cent year-on-year (YoY) decline in Q1 on an annualised premium equivalent (APE) basis, ICICI Prudential Life’s individual protection business witnessed a fall of nearly 40 per cent YoY.
 

ICICI Prudential and HDFC Life saw their protection APE grow by 22.2 per cent and 31 per cent, respectively.
 

During an analyst call, N S Kannan, MD & CEO, ICICI Prudential Life Insurance, said: “We have had supply-side challenges during the pandemic to run the retail protection business. However, we have come to a stage now where sequentially, the numbers have stabilised. In Q3, we expect YoY growth”.
 

“We will continue to recalibrate our protection strategy and work on decongesting the process for our priority customers, and we are also working on pitching the appropriate sum assured according to eligibility to our customers,” Kannan said.


 

Niraj Shah, chief financial officer, HDFC Life, told Business Standard: “The group business has driven the overall protection growth. The credit life business, which is a fairly stable business for us, continues to be strong and profitable. With robust credit growth for banks resulting in fairly strong disbursement growth, our credit life business has grown over 90 per cent YoY”.
 

Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance, said: “In Q1FY22, the second wave of Covid led to a higher number of retail protection policies being sold. This year, with Covid receding, there has been a marked shift in favour of saving and investment policies. Like some listed insurers, we too have experienced this phenomenon. Our overall protection portfolio continues to grow because of an increase in group credit life, which is largely driven by the uptake in retail credit on the banking side.” 
 

The retail protection business had gained traction when the pandemic was at its peak. But tighter underwriting standards adopted by life insurers, at the behest of reinsurers and to protect their balance sheet because of the mounting Covid-related death claims, meant the demand for term products by retail consumers was not fully met by insurers.
 

During April 2020-May 2022, the life insurance industry received 235,000 claims aggregating to Rs 18,135 crore for Covid-related deaths. Of these, about 234,000 death claims, amounting to Rs 17,606 crore, were settled.
 

As death claims due to Covid were on the rise, reinsurers raised prices on quite a few occasions. Term prices inched up 30-50 per cent in some cases over the past two years.
 

Insurers say term prices have stabilised now and there should not be any huge change in the prices going forward. Also, some large players, such as HDFC Life and ICICI Life, have raised their threshold for retention of risk on retail protection plans on their balance sheet, thus bringing down the overall retail protection sum assured that is reinsured.
 

An increase in retention limit means the insurer increases the degree of risk it retains on its balance sheet. Beyond that, the insurer cedes the excess risk to a reinsurer. The higher the retention limit, the lower the reinsurance costs.