Term insurance likely to pinch the pocket further
Fair trade regulator CCI on Monday said it has given nod to acquisition of government’s entire stake in THDC India and North Eastern Electric Power Corporation Ltd (NEEPCO) by state-owned NTPC Ltd. As part of transactions, NTPC will acquire 100 per cent of the issued and paid-up share capital of the NEEPCO and 74.5 per cent stake in THDC India, the CCI noted in separate releases.
If you intend to buy a term insurance policy, you should do it soon. This is because life insurance companies are planning to raise the premium rates on term insurance covers before April 1.
The trigger for the revision in premium rates has come from foreign reinsurance companies that have decided to hike the reinsurance rates on term insurance business of domestic life insurers.
Term insurance refers to protection plans where the insured pays a specific premium amount at fixed intervals during the policy term.
In the event of demise during the policy term, the nominees receive the ‘sum assured’ which the policy holder had selected while purchasing the plan.
A Reinsurer is a company that provides financial protection to insurance companies. Reinsurers handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business.
A senior life insurance industry official said, “The Reinsurance Group of America (RGA) had given a notice three months ago (which ends this month) of their decision to hike the reinsurance rates for term insurance. Similarly, Swiss Re too has communicated to domestic insurance companies of increasing the reinsurance cost next month. As a result, life insurers could pass on the hike in reinsurance cost to their customers next month. We don’t expect them to absorb the higher reinsurance cost.”
An appointed actuary of a private life insurer said, “The premium rates on term insurance plans are highly competitive today. Secondly, the rates are set on the mortality experience which has worsened than expected. The reinsurers have already communicated that before April 1, they would be reviewing the reinsurance rates on term insurance.”
Trevor Bull, MD and CEO of Aviva Life Insurance told DC, “Term insurance is a commoditised product. Reinsurers and insurance companies are led by their experience on claims and other regulatory updates in pricing for term. It would not be unusual to find them changing prices from time to time, based upon their experience. And yes that could potentially impact the end consumer price for term products.”
When asked what would the increase be for prospective term insurance buyers, Bull said, “It’s too early to say as it is work in progress and still being assessed. Also, it is dependent on the age and terms of coverages.”
A reinsurance industry official explained, “While deciding the mortality premium rates, insurance companies made assumptions such as salaried customer versus self employed, smoker versus the non smoker, urban customer versus the rural customer. These assumptions have not worked and there has been a deterioration in the mortality experience. Also because of competition, insurers have kept the pricing of term insurance low.”