Insurance brokers' advice to become crucial amid tighter underwriting norms

Low existing rates and revision of reinsurance premiums are key driver

The second round of hikes in term insurance premiums (after the one in April) has begun. HDFC Life, ICICI Prudential Life Insurance, and IndiaFirst Life Insurance Company are some of the insurers to have announced their hikes.

According to insurance brokers, the extent of hikes - which varies across insurers, age, and sum assured - ranges between 10 per cent and 30 per cent. Some insurers undertook hikes partly in April, the balance now. Besides hiking premium rates, some insurers have also tightened their underwriting norms. This will raise the entry barrier for customers.  

Brokers say insurers perceive higher risk in term insurance.

“Losses in the term insurance business are forcing them to revise their premium rates and tighten underwriting norms,” says Naval Goel, chief executive officer (CEO), PolicyX.com.

Low existing rates, higher-than-anticipated losses during the second wave of the Covid-19 pandemic, and revision of reinsurance premiums by reinsurers are the key drivers.      

Tighter underwriting norms

Some insurers, who earlier offered term plans to non-graduates, have now decided to offer them only to those who are at least graduates.

One insurer has classified cities into top and non-top cities.

“The minimum income criterion for obtaining term insurance in the top cities was Rs 3 lakh for the salaried and Rs 5 lakh for the self-employed. That remains unchanged. But for non-top cities, the minimum income criterion has been raised from Rs 3 lakh to Rs 5 lakh for the salaried class, and from Rs 5 lakh to Rs 8 lakh for the non-salaried class,” says Goel.

Moreover, over 5,000 pincodes have been declared negative. Insurers have also been putting in place more stringent rules for medical check-ups.

“While earlier telemedical would suffice for those buying term plans with sum assured below Rs 1 crore, now many insurers are insisting on in-person check-up for such buyers as well,” adds Goel.

Buy early

To get the benefit of lower premium rates, buy term insurance at the earliest. You may still be able to get it from a player that has not yet implemented its premium hikes.

Experts also suggest buying term insurance at an early age.

“Premium rates are lower at a younger age. Once you have bought a plan, the rate remains fixed for the entire tenure, so you become immune to future rate hikes,” says Abhishek Misra, CEO and principal officer, Bonanza Insurance Broker.

Comparing rates across insurers can also help, given that considerable differences exist in the premiums of various insurers.

Many buyers earlier shunned the Life Insurance Corporation (LIC) of India’s term plans as its premium rates were higher than those of the leading private insurers.

“Now that the gap is likely to shrink, buyers may consider LIC’s term plans also,” says Deepesh Raghaw, founder, PersonalFinancePlan, a Securities and Exchange Board of India-registered investment advisor.

Get the right advice  

The minimum income criterion is being raised.

“Business persons must ensure they show their actual income in their income-tax returns. Showing a lower income could come back to bite them,” says Goel.

Either their proposal could be turned down or they could be issued a plan with a lower sum assured. With underwriting norms becoming tighter, the number of insurers willing to accept a customer’s proposal is likely to shrink.

“Before they can compare their premium rates, retail buyers will need to first identify which insurers will accept their proposals. They may find it difficult to do so themselves and should hence take the advice of a reliable insurance broker for this,” says Raghaw.

THINGS TO CONSIDER WHILE BUYING TERM INSURANCE PLAN

• Look at insurer’s claim settlement ratio
• Check claim settlement by value: Try to find out if the insurer did a good job of settling high-value claims (which are likely to for term plans)
• Make proper disclosures at the time of buying
• Even if an agent/salesperson prompts you to make false disclosures, don’t do so - this could lead to claim rejection later
• Make written disclosures via email to create a paper trail
• Avoid insurers with poor financials, such as low solvency ratio
• Make honest declarations about existing policies - this has an effect on how much additional cover you can get