Page 36 - Insurance Times May 2020

insurer's ability to meet its financial obligations places India Annuity plans typically will have long time horizon, if we look
at a risk level of CRT - 4 measured on a scale of 1 to 5 where at from the point of view of accumulation and payment to
Country Risk Tier 1 (CRT-1), denoting a stable environment the policy holder from a particular age and as long as he/
with the least amount of risk, to Country Risk Tier 5 (CRT-5) she is alive. Of course, this depends on the option the
for countries that pose the most risk and, therefore, the customer chooses before the annuity payment is started by
greatest challenge to an insurer's financial stability, strength the company from among 5 to 8 or 9 options. This is a
and performance. This indicates that the companies product which should become more attractive for the
operating in India have to exhibit a higher level of caution customers, because it spans over an entire life of a customer.
in factoring the risks into their pricing and valuations.
One can invest in lumpsum and get guaranteed returns over
Current situation of the pandemic in India, though is not a period of his entire life and of spouse and get back the
alarming has caused a huge damage to the GDP, which is corpus also, depending on the options one exercises. The
estimated to be at 1.90%. As it is India has the lowest per annuity payable will be same throughout the period and
capita income with second highest population numbers in hence again a high risk proposition for the company, which
the region. This can become even worse as we see the means that the companies have to carefully factor in all risks
negative impact of Pandemic in various components such that may arise due to longevity, interest rates, investment
as financial, economical and social life. returns and general financial condition of the economy over
a longer period of time.
A lot of money is being spent on the well being of people
living below poverty line and also on providing medical Here again the risk factors as mentioned by 'AM Best' have
facilities for all those affected by the pandemic. The to be considered while arriving at the rate of return to be
slowdown in economy can result in loss of jobs, lowering of given to the customers. However, these kind of pandemic
per capita income, more spending on medical expenses and can turn in favour of the insurance companies, because of
rise of inflation. These factors can reduce the disposable the adverse effect it has got on the senior citizens of above
income and can result in lower level of savings. The demand 65 years. But general economy and the falling interest rates
for the products which have a savings component can come can adversely impact the guarantees given by the insurance
down and the pure insurance component can go up. companies, and hence they will keep on revising the
guaranteed rates downwards from time to time.
This will change the equations of financial inflows through
new business and also investment earnings of life insurance As we started learning that things are going to change, we
companies. This can result in lower amounts of bonus have seen the products and price variations due to the
declaration which will again be unattractive to the people pandemic. However, the processes of administration,
who want to save money through insurance products. The servicing and marketing also have to undergo a huge
life insurance premiums in India are more or less on par with change. Adoption of ever growing internet users and
US (2.88%) at about 2.74% of GDP. China has insurance availability of data at affordable prices can trigger the next
penetration of 2.33% whereas UK has a penetration of revolution in these aspects of life insurance. Younger
8.32%. This may not remain so as the term insurance generation uses the internet for various purposes ranging
component goes up and the savings kitty comes down, from learning to entertainment.
especially in India.
However, sooner than later they will be using it to make
Another component of life insurance business in India is investment decisions through data interpretation, virtual
pensions. These are again divided into two types known as discussions and electronic agreements. In due course of time
defined benefit and defined contribution. Now, defined even the government will have to provide for recognising
benefit is out and only defined contribution schemes are the electronic agreements as official documents. The
prevalent in India and most of the life insurance companies repositories will have a major role in safeguarding the data
have products under the banner of retirement plans. One and use it for the benefit of both insurers and the customers
can start accumulating the corpus from the time he/she from time to time.
starts earning and plan for a regular income called annuity
from a particular age. These can be termed as annuity plans With the advent of 5G coming around the virtual discussions
more than pension plans. In India annuities are taxable as will replace personal discussions with more impact. As
per the Income tax guidelines. mobile internet, smart phones and 4G changed the way the

36 The Insurance Times, May 2020