Beginning FY22 i.e. April 1, 2021, term insurance premium rates will get dearer. This is majorly due to increasing death claims on account of Covid-19 as well as increase in reinsurance rates. And as the increase in reinsurance price comes amid the pandemic, insurers are not in the position to absorb the higher costs.
In reinsurance there is involved a reinsurer who assumes part of the risk taken by the primary insurer/ insurance company or other reinsurer for premium charged to the insured. As there is seen a threat of second wave of coronavirus in regions such as South East Asia (including India), the UK and the US, reinsurers globally have increased rates.
Reinsurance rates for Indian insurers went higher even before the pandemic
Even before the world saw the lethal virus come through, insurance companies in India faced hardening in reinsurance rates. And this was as global reinsurers turned wary of the fact that the reinsurance rates in India are lower in comparison to the cost of a life cover in European nations, where the life expectancy rate is better.
Hike in premium rates only by the private life insurers and not LIC
And what is of interest is that LIC being able to negotiate better terms with reinsurance companies and commanding the largest market share in the industry will not be hiking the premium for its term plans. "Private insurers don't have the flexibility to bring down rates with global reinsurers. LIC is able to do that and hence their premiums are not being hiked," said the India head of a global reinsurer.
Why the term plan premium by private insurers will be increased?
For the larger risk coverage offered, the insurance companies or insurers pay reinsurance premium to the reinsurers to get partly covered or the risk component is partly shared between the primary insurer and reinsurer in simple terms. And in a scenario when reinsurers increase rates, the end purchaser of the insurance policy has to pay a higher premium price.
Nearly all of the reinsurance contracts are renewed between January 1 and April 1 in any year. In ongoing financial year itself, term plan premium rates were increased by 15-20 percent after reinsurance rates for these policies were revised.