Pandemic hit individual life insurance policy sales in 2020

KARACHI: The insurance sector registered a decline in the sale of new individual life policies (first-year and single premiums) in 2020 owing to the imposition of the coronavirus-related lockdown, according to a recent report by the financial sector regulator.

Insurance distribution channels like bancassurance were unable to reach out to clients as retail banking activities remained limited last year, said the State Bank of Pakistan (SBP) in its annual financial stability review.

First-year, second-year and single premiums under individual life policies decreased by 9.6 per cent, 18.4pc and 9.4pc, respectively, in 2020.

However, gross premiums for the life insurance sector increased 2.9pc to Rs201 billion in 2020 despite the onset of the pandemic. The SBP’s disaggregated analysis showed growth in group premiums provided the impetus.

They increased Rs5b to Rs26bn in the year under review. “This 25.6pc year-on-year increase in group premiums occurred on the back of expansions carried out by the public life insurer in the National Health Insurance Programme and Khyber Pakhtunkhwa’s Sehat Sahulat Programme,” it said.

Growing investments

Investments by life insurance companies grew 13.7pc to Rs1.3 trillion at the end of 2020. The sector became more risk-averse during the year — a fact reflected by growth in the risk-free investments in government securities. They grew 18pc to Rs984bn in 2020. At the same time, the sector increased its investments in equities and mutual funds by 22.1pc to Rs221bn while decreasing its deposits by 31.1pc to Rs73bn.

Life insurers moved away from term deposits and towards equities and mutual funds in order to take advantage of the large dip in the Pakistan Stock Exchange in March 2020 following the imposition of a nationwide lockdown. “This may also be an indication of evolving investment strategies as insurers seek better returns from their existing portfolios in a low interest rate environment,” the SBP commentary said.

Rising claims

The claims ratio rose 17pc in 2020, which indicates that customers had strained disposable incomes while the pandemic raged havoc.

Gross claims rose to Rs118bn on the back of an increase in surrender claims that arise out of policy cancellations. They increased by Rs13bn to Rs67bn in 2020. “There was a 23.1pc (or Rs2bn) increase in death claims to Rs12bn, which may be directly associated with Covid-related deaths,” it said.

The SBP noted that the contraction in the sales of new individual policies along with an increase in surrender claims indicates the possibility that policyholders faced constraints in disposable income that led them to not buy new policies or surrender existing ones.