Can premium rates for life insurance policies fall in future?

Amid Covid pandemic, Indian insurers encountered elevated claim ratios, leading foreign reinsurers to perceive India as an added risk. As a consequence, premium rates for group health insurance spiked significantly for corporations providing health insurance to their employees. This surge was a result of the high loss ratio in group health insurance policies, primarily due to the surge in Covid-related claims. However, experts now suggest that reinsurers should revert to pre-Covid premium rates for short-term contracts.

Insurance serves as protection for individuals, while reinsurance is a cover taken by large insurance companies to ensure their resilience against significant losses. Any increase in premium rates by reinsurers ultimately affects policyholders. In India, GIC reinsures a portion of the life insurance business, while foreign players underwrite a larger share. GIC Re primarily offers reinsurance services to general insurance companies operating in the Indian market.

“As a risk management strategy, most life insurers enter into reinsurance agreements. These contracts are of a long-term nature and the pricing is based on the mortality experience. Short-term volatility has relatively less impact on reinsurance rates for such contracts. However, we believe for short term insurance contracts, there is a case for normalisation of reinsurance rates to pre-COVID-19 levels…Reinsurers are actively monitoring the short and long-term mortality trends compared to the pricing,” said Souvik Jash, Appointed Actuary, ICICI Prudential Life Insurance.

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Group term insurance is an annual contract where a company pays an annual premium to the insurance company and in return, the insurance company pays the sum insured to the family of the employee in case of sudden death.

Can premiums be reduced for life insurance policies if reinsurers lower their rates in the future? “Premium for short-term contracts may come down if reinsurance rates fall in the future,” said Jash.

There are several factors that determine premium rates. Reinsurance is just one of the many factors which can impact premium rates. Other factors which can have a significant impact on the pricing are the company’s own mortality experience, target customer segment, competitive environment among others.