This article is written by Juhi Pancholi. This article is a walk-through of the implications on the insurance sector in India and the Regulator’s measures to curb the effect of Coronavirus on the industry and economy at large.

Introduction

It is impossible to be oblivious to the dent COVID-19 has made in every walk of our lives! From working patterns to grocery shopping to socialising, things are up in the air with no clear way to fix the dent. Predictably, various industries are directly or indirectly affected by it and those in the insurance industry are no exception.

Although gross premiums written in India exceeded Rs. 5,78,000 crores in FY 2019[1] insurers’ reputations have never been overwhelmingly positive among customers. This perception is further battered during the pandemic as insurance-holders uncover that many basic policies do not cover medical expenses associated with COVID-19. Despite this, the rising global and domestic impact of the pandemic has emphasized the fundamental need for life insurance in every household. 

Impact on the Insurers

The insurance industry is always prepared for the worst – after all, they are in the business of taking on losses of individuals and companies. However, insurance companies in India are chafed to the neck on multiple fronts – from employee safety issues, to business continuity concerns, and finally fulfilment of customer claims and other service obligations. 

• Employee Safety & Privacy

At the outset, protection of health and safety of its employees are of immediate concern for insurance companies. Regular sanitization and social distancing measures are inadequate to curb the spread, and realizing this, companies have adopted work-from-home technologies including video-conferencing services, collaboration platforms, and other digital tools for seamless functioning of businesses and its employees.

Among other unknown vulnerabilities, strengthening cyber-security is a key component of crisis management. Enabling claims managers and underwriters to work offsite have increased their exposure to cyber threats like phishing scams and ransomware attacks. So insurance companies are in dire straits to establish cyber-security protocols, strengthen remote access policy and technologies and identify potential threats to facilitate a safe exchange of confidential information amidst the mass digitization of insurance companies.

Moreover, India’s data protection legislations i.e. Information Technology Act, 2000 and Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011, fail to protect individual interest in today’s time. Even the Personal Data Protection Bill, 2019, which is likely to be approved by the Parliament in the Monsoon session of 2020, fails to take into account all stakeholders involved in data breaches. For instance, the Bill imposes heavy fines up to Rs. 15 crores or 4% of the annual turnover for violations, but exempts the ‘consent’ requirement in certain circumstances where – data is required by the State, for legal proceedings, or to respond to a medical emergency. In essence, India lacks a legal framework that regulates or enables the use of such work-from-home technologies without violating the Fundamental Right to Privacy granted under Article 21 of the Constitution.

• Business Outlook

Recently, Moody’s Investor Service slashed India’s growth forecast from an estimated 5.3% to 2.5% for the year 2020[2]. Even the Organization for Economic Cooperation and Development (OECD) predicted an overall reduction in global growth to just 1.5% in 2020[3]. Simply put, the insurance companies are not insulated by the global economic slowdown. 

Insurance companies are shock absorbers for the economy and necessitate financial planning including liquidity, contingencies, tax implications in the short and long run. To soothe hiccups along the way, the Insurance Regulator announced additional time of 15 days for monthly returns, 30 days for quarterly, half-yearly, yearly regulatory returns and for cyber-security audits due by 31.03.2020[4]. Moreso, IRDAI announced further relaxation of timelines for filing of re-insurance programs by insurance companies for FY 20-21, which has been extended by 1 month upto 31.05.2020[5].

Taking into account the liquidity crunch faced by the borrowers and in line with the RBI’s directions, insurers are permitted to grant a moratorium of three months towards payment of instalments falling due between 01.03.2020 and 31.05.2020 in respect of term loans. However, the Circular clarified that interest shall continue to accrue on the outstanding portion of the term loans during such moratorium period. More importantly, the Circular stated that rescheduling of payments, including interest, will not qualify as a default for the purpose of reporting NPAs[6].

In light of recent developments and reliefs accorded by the Regulator, insurance companies may find themselves in a better position to setup a business continuity plan. As the industry pulls its socks up to tackle an influx of COVID-19 claims, the government announced relaxations of timelines and moratorium periods enabling insurers to concentrate on what’s important – being well-capitalized for expeditious payment of claims. Frequently, insurance companies resort to re-insurance practices – where multiple insurance companies share risk and insulate themselves at least in part from a major claims event. So an extension until 31 May, 2020 provides a temporary breather and spread their risk in the business books.

• Customer Service 

Expeditious client servicing and claims payment forms the core of an insurance company. Insurers have witnessed a surge in claims pertaining to COVID-19 as the virus engulfs the country at large. To ensure fairness, the IRDAI directed companies not only to expeditiously clear COVID-19 death claims but to thoroughly review claims before rejecting them.

Further, insurance companies were given an extension of 30 days for dispatch of policy documents issued between 15.03.202 and 30.04.2020. Moreso, the Regulator announced an additional time of 21 days to redress policyholders’ grievances, as opposed to the regular response time of 15 days. However, the Circular further clarified that this extension is not applicable to COVID-19 related grievances and the extant timelines would apply in that case.

Measures for Policy-holders

With thousands being tested for COVID-19 and rising death toll in India have lead shivers down the insurance industry. In response, the government has provided some relaxation in the form of new amendments. Recently, the Life Insurance Council, the face of the Indian life insurance industry, said that all life insurers, including public and private, are committed to processing any death claim pertaining to COVID-19 at the earliest. 

• Relaxation in timelines

The Insurance Regulatory and Development Authority of India (IRDAI) also provided additional time for payment of renewal premium in case of health insurance policies. In its recent Press Release dated 23.03.2020, IRDA directed insurance companies to pardon delay upto 30 days to the policyholders whose life insurance policies’ premiums fall due in March and April 2020, without deeming it as a disruption in the policy. 

Moreso, the Central Government’s notification SO 1237(E) and SO 1238(E) dated 01.04.2020 relaxed renewal dates of motor vehicle third party insurance policies and health insurance policies due for renewal in the period between 25.03.2020 to 14.04.2020, and extended until 21.04.2020 to ensure continuity of health insurance.

Unfortunately, relaxation in insurance timelines announced by two separate Authorities has created uncertainty and confusion in the minds of policy-holders with regard to the grace period allotted for policy renewals.

• Inapplicability of Force Majeure clause

According to Black’s Law Dictionary, Force Majeure – French for “superior force” – is defined as “an event or effect that can be neither anticipated nor controlled. It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.”

Typically, Force Majeure events include Acts of God, floods, wars, fire, epidemics, pandemics etc. Most insurance companies, in their policy documents, include a provision which defers or absolves them from servicing policy related payments in the occurrence of Force Majeure event/s. 

Realizing this, Life Insurance Council (LIC) clarified that the clause of ‘force majeure’ will not apply in case of COVID-19 death claims. Infact, LIC urged insurance companies to honour death claims arising from COVID-19 pandemic. 

• Wider coverage by insurance companies

The costs of admissible medical expenses during the course of treatment including the treatment during quarantine period has to be settled in accordance to the applicable terms and conditions of policy contract and the extant regulatory framework,” IRDAI said in its March 4 circular, while advising insurers to design products covering costs of treatment for coronavirus. However, in cases, where policies explicitly exclude coverage for epidemics or pandemics, the insurance companies may deny providing benefits to customers. 

A comprehensive insurance policy in India would cover pandemics and epidemics along with sudden illnesses like dengue and malaria. Recently, in a BusinessLine report, insurance companies including SBI General Insurance, Edelweiss General Insurance and Bajaj Allianz General confirmed that they will cover expenses against the treatment of COVID-19 giving a breather to insurees.

Further, those who cannot afford expensive health policies may also consider the “Aarogya Sanjeevani” scheme effective from 1st April, 2020[7]. This scheme covers the hospitalisation treatment costs of COVID-19 and the IRDAI has permitted 29 insurance companies to market this policy. Apart from low premium, this policy offers standard terms and conditions, easy portability, and simpler claim process to ensure a win-win situation for both the policyholder and insurer. 

Conclusion 

The flourishing industry of health insurance has demonstrated integrity and empathy in coming forward to higher acceptance of COVID-19 cases with faster claim processing and relaxation of premium payment. Thus, despite the not-so-great relationship with policyholders in the past, fast-track product approval, speedy settlement of death claims and hospitalization expenses related to the pandemic may be their ticket to gain back our confidence in the insurance industry!

References

1. Indian Insurance Industry Analysis, https://www.ibef.org/industry/insurance-presentation
2. Economic Times. 2020. Moody’s cuts India growth forecast to 2.5%. Available at: https://economictimes.indiatimes.com/news/economy/indicators/moodys-slashes-india-gdp-growth-in-2020-to-2-5/articleshow/74840446.cms?from=mdr
3. OECD.org. 2020. Coronavirus: The World Economy At Risk. Available at: http://www.oecd.org/berlin/publikationen/Interim-Economic-Assessment-2-March-2020.pdf
4. Life Insurance Council. 2020. Additional Time Allowed For Filing Regulatory Returns. Available at: https://www.lifeinscouncil.org/component/Additional%20Timelines%20for%20regulatory%20returns.pdf
5. IRDAI. 2020. Relaxation Of Timelines For Certain Provisions Of The IRDAI (Re-Insurance) Regulations, 2018. Available at: https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo4079 .
6. Life Insurance Council. 2020. Rescheduling Of Term Loans In The Context Of Outbreak Of Covid-19. Available at: https://www.lifeinscouncil.org/component/Rescheduling%20of%20Term%20Loans%20in%20the%20context%20of%20outbreak%20of%20Covid-19.pdf
7. IRDAI. 2020. Press Release. Arogya Sanjeevani Policy. Available at: https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo4083

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