Page 25 - The Insurance Times May 2025

With an uncertain economic environment and likely job cuts,
people would like to hold the money rather than invest in
the market, further reducing demand for goods. This is likely
to have an adverse impact on businesses resulting in a fall
in revenue during 2025-26. This may lead to an impact on
the premium income for the insurance sector. The central
bank (RBI) may also reduce the interest rate to make the
lending cheaper to boost the economy.

This on the one hand may make taking loan cheaper for
customers but on the other hand for the insurance sector,
this may bring the interest rate risk because many Indian
life insurance companies have sold traditional products with
high-interest rate guarantees.

The volatile economy has a volatile stock market where
fall since 2021-22 indicating that the growth in the premium
selling unit-linked new business could be challenging. Under
income is not keeping pace with the growth in the Gross
such scenario surrenders may also increase reducing fee
Domestic Product (GDP).
income to insurance companies. There could also be an in-
crease in lapse rate due to customers preferring to hold the
The period of COVID also led to an increase in operating
money and rise in unemployment.
expenses. The increase in claim and operating expenses may
have led to a reduction in the profit for the industry in the Conclusion
year 2021-22 from the previous year of 2020-21.
There are couple of parameters such as death claim, in-
The life insurance claim increased during 2020-21 and 2021- crease in operating expenses, fall in profit after tax, fall in
22 at the peak of the COVID; though most of the life insur- real premium growth within the Indian insurance industry
ance companies had reinsured a high percentage of term that suggest that there was an adverse impact due to
insurance products that resulted in the losses to most of the COVID. The message is that the industry was impacted, and
reinsurance companies during this period. COVID is a good it is now time to learn from experience and prepare for the
reminder of the value of risk management. It is important future.
to foresee and anticipate the risk and price accordingly. In This is possible through improving the risk management
the current situation of prevailing geo-political risk and tariff
practices, implementing enterprise wise risk management
war, the next risk should be anticipated. Climate risk is also
rather than silo approach, embedding risk culture, proac-
knocking on the door.
tive in risk assessment, improving the corporate governance,
and improving risk management education.
In the midst of Ukraine-Russia and conflict in Gulf , the new
economic order is developing due to introduction of recip- The introduction of a reciprocal tariff is another example of
rocal tariff by President Trump in early 2025. If the current the sudden emergence of a new risk that was not antici-
level of tariff introduced stays will shift the world economic pated six months back, therefore, the corporates need to
order. be prepared for the sudden spurt of risks. To fight such an
uncertain environment, there is a need to be risk-ready at
There could be a fall in exports (Gems, diamonds etc.), a all the time.
rise in unemployment, a fall in stock price (Indian market
crashed by 4% after introduction of 26% tariff on India [1]), References:
a fall in economic activity resulting in a drop in GDP. As https://timesofindia.indiatimes.com/business/india-busi-
per the press [1] several economists including Goldman ness/how-much-will-indian-economy-be-hit-by-trump-tariffs-
Sachs have decreased the GDP by 20 to 40 basis points to officials-maintain-gdp-growth-projections/articleshow/
6.1%. 120056332.cms.

24 May 2025 The Insurance Times