Term life insurance premiums are likely to increase again soon, taking the total hike in premiums this year to 20-40 per cent. According to insurance brokers, the expected rise in premiums will happen in the next three to six months.
Last month, many life insurance companies increased the premium on their term life insurance plans by up to 20 per cent. HDFC Life Insurance, Tata AIA Life Insurance, Max Life Insurance and ICICI Prudential Life Insurance all hiked the premium (price) on term insurance policies from April 10 (See table below).
Premium in table is for 30-year-old, Non-Smoker Male, 45 years pay-term, Rs 1 Crore Cover
|Insurer||Premium before April 10||Higher premium after April 10||% Difference|
Why are insurers hiking premiums?
Life insurance companies are increasing term insurance premiums because re-insurers have revised their premiums (which life insurers have to pay for re-insuring their risk) upwards. Re-insurers increased their premium rates as the number of claims has been rising. Naval Goel, CEO & Founder, PolicyX.com said, “Recently, there was a hike in mortalities and claims as compared to the expected figures. Because of this, the reinsurers have increased their prices (premium) by 30-50 per cent.” Given the increase in reinsurance premiums, life insurance companies are expected to increase premiums by up to 40 percent.
Santosh Agarwal, CBO-Life Insurance, Policybazaar.com said that in the past one month, few insurance companies have already increased the prices of term life insurance plans by up to 20 per cent. “For them, there will be another price rise of 20 per cent within 3-6 months. For companies who have yet not increased the price, there will be a total increase of 40 per cent,” she said.
Many life insurers have not increased term insurance premiums as yet. According to industry sources, this is because some of these insurers are still considering whether they should pass on the hike from re-insurers to the policy buyers.
Factors which lead to rise in the premium
Term insurance premiums are calculated on the basis of mortality rate and expected claims outgo, and accordingly re-insurers fix the re-insurance premium that they charge insurance companies. Once reinsurers increase the premium charged from life insurers the latter will increase term insurance premiums by refiling their existing products with the Insurance Regulatory and Development Authority of India with certain changes and an increase in price.
Agarwal says, “To decide on the term life insurance premiums in India, it is assumed that for every 10,000 lives covered under term life insurance plans, only 3 deaths would occur in a given policy year. However, the actual deaths that happen are between 4 and 4.5. Moreover, the average claim amount per policy is Rs 1 crore, which is massive for both the insurer and reinsurer.”
You must know that for pricing term insurance plans, the actual versus expected claims are measured and if the ratio is more than expected, it leads to a negative experience for insurers and re-insurers. Therefore, with the ratio being more than expected and negative mortality experience, reinsurers had decided to increase their re-insurance rates for life insurance companies.
Consequently, the cost of re-insurance for life insurance companies went up and pressure on them to increase the premium of term life insurance plans also increased. . Most life insurers have already revised the premium rate from April and are considering another hike while those who had not increased premium earlier are also planning to do so around May and June, as per industry sources.
Pankaj Chauhan, MD and CEO, EPOCH Insurance Brokers, said, “The prices of term insurance we have, are completely based on the mortality tables as no other data was available. The assumption as per the private insurers was that fewer deaths will occur. However, as per the most recent industry data, it appears that rate is more than what was used earlier to calculate the premiums.” He added, “The assumption on which these premiums are based is now being challenged. Therefore, on average, most insurers have hiked the price by almost 20-25 per cent.It also depends on the mortality ratio. It’s purely a call by reinsurers.”