Insurance is a risk management tool, used by customers based on their confidence, assessment and resilience to withstand risks, especially manifested during crisis. The sector has witnessed several global pandemics. Insurers, by default, factor such potential risks into their business models. They analyse potential risk implications and ensure preparedness to combat the resulting state of affairs.
This unprecedented crisis has challenged the systems, products and processes of the industry. Businesses are facing diverse concerns related to the health and safety of workforce, disrupted operations, liquidity crunch, transitioning to new strategies for crisis management and more importantly, adopt the response mechanism in these difficult times. The challenges to the sector on cash flows and solvency margins, will NOT impact servicing of customers. The sector will overcome this crisis, on the strength of their reserves and support of the shareholders.
The insurance industry stands united in safeguarding the interests of its policyholders. In this extraordinary situation, insurers are innovating to upscale technological infrastructure, providing solutions and services digitally, communicating frequently with stakeholders with utmost transparency in disclosures. The aim is to reiterate trust in the noble idea of a simple and uncomplicated financial protection instrument, when it is required the most.
People are worried about the financial impact of Covid-19. They are prudently planning their expenses and savings. Most people are worried about erosion of wealth, expecting negative returns in double digits. Plummeting stock markets and the unstable environment have changed their approach toward risk management as well as insurance.
Given this scenario, the onus on insurance providers has further increased. The importance of insurance as a risk mitigation tool for financial security and the need to prioritise insurance must be reinforced. Insurance plays an important role by ensuring the financial well-being of individuals and their families, just as medical services play a role in maintaining the physical and mental well-being. There needs to be a mindset shift towards treating insurance as a priority and having “Sabse Pehle Life Insurance”.
Insurance as an asset class, provides protection against risks of mortality, morbidity and market volatility. The risks of mortality and morbidity are easily understood, through simple expressions of Dying too early and Living too long. However, the understanding of Market volatility risk is often drowned under the clamour of Risk vs Return, Illiquid, Long term nature, Lock Ins and other such terms. A simple illustration of market volatility is the impact on your investments and returns, accumulated over a period of time, in the current market. The investment management philosophy of insurance companies, especially in Par and Non-Par products (Endowment and Money Back) is based on Investments for Long term, with an Asset – Liability matching and management. This is the fundamental differentiator of Insurance companies and other financial asset classes, which is largely overlooked. It is this key differentiating capability of Protection against market volatility, that enables insurance companies to honour the guaranteed commitments made at the time of purchase of policy.
The surreal and uncertain nature of the pandemic also brings about philosophical thoughts on existence. There are innumerable opinions and counter opinions on the “Live today, for tomorrow may never come”. However, it is important to remember that human beings have strong survival instincts that enable adapting to a new world order. This resilience will help us all to overcome the Covid-19 situation. Therefore, it is important not to make short-sighted decisions. A strong note of advice is not to allow plans made for the future to lapse and to not discontinue the payment of premiums. This will impact fulfilment of the long-term goals, which are certain! Plan, prepare and continue to pay the premiums. The approach behind investments is based on “SafetyFirst” philosophy. Whether the investments are equity or debt funds, these investments are for long-term to support people during volatile times.
The industry understands the demand for protection products amid the spread of Covid-19. Each one of us is trying our best to mitigate operational challenges with respect to selling and servicing insurance products digitally. Online distribution portals also state that life insurance has registered a 20% growth during this period indicating that people are realising the importance of insurance.
Covid-19 has adversely impacted the nation in unimaginable ways. Insurers and customers are equally aware of their social responsibility to support Government measures to control the spread of the pandemic. We must contribute in every possible way to bring India’s financial state back on track. The long-term investments in insurance can contribute extensively towards nation building, in addition to providing the much-needed risk management against mortality, morbidity and financial volatility.
I close with a prayer for World health.
The author is the MD and CEO, India First Life Insurance