KARACHI: The life insurance industry appe­ars to have emerged out of Covid-19 unscathed.

From premiums and assets to profitability and even the number of employees, nearly all of its major performance indicators were stronger at the end of March 2021 than a year ago.

“Since insurance penetration in Pakistan is already on the lower side, we understand that the impact has not been of deterioration of the financial strength of life insurance companies,” said the spokesperson for the Securities and Exchange Commission of Pakistan (SECP), which regulates the insurance sector.

Life insurance penetration, which reflects premiums as a percentage of GDP, has barely inched up in the last many years. It currently stands at only 0.6 per cent, significantly lower than prevailing rates in comparable economies.

Surge noticed in protection-based mass market policies distributed via branchless banks, digital platforms

But a smaller footprint in the economy doesn’t mean the companies didn’t take a hit at least in the short run. The worst period for the industry lasted from March to June of 2020 as a nationwide lockdown restricted the mobility and accessibility of insurance agents.

As a result, the pace of growth in premiums, which are the mainstay of the life insurance industry, slowed down to 4.6pc in 2020 to Rs233.1 billion. In contrast, death claims that insurers paid out to policyholders in the same year grew 20.2pc to Rs12.6bn, according to statistics provided by the SECP.

In simple words, death claims in 2020 increased at a significantly higher rate than the rise in gross premiums.

A closer look at the disaggregated data reveals that despite an increase in the overall premiums, new business or first-year premiums dropped 3pc in 2020. The decline was a lot more pronounced (34.8pc) in the first six months of the last calendar year.

“We were expecting a decline in new business. But thanks to a significant recovery in the second half of 2020, the drop in new business was limited,” said Mohammed Ali Ahmed, deputy managing director of EFU Life Assurance, second largest private-sector life insurer in terms of assets.

He insisted that the life insurance industry met the Covid-19 challenge head-on despite a one-fifth increase in death claims within a year. “Our company alone has paid out Covid-19–related claims in excess of Rs900 million so far,” he said.

Change in consumer behaviour

According to Mr Ahmed, the pandemic has brought about a “notable change” in the behaviour of an average life insurance consumer: they are now more interested in the insurance protection aspect rather than the savings proposition.

“For the first time, we could see that people were eager to find some kind of insurance protection,” he said.

Life insurance is a “bundled proposition” in which people invest for 10 to 20 years for protection against death or disability while accumulating “disciplined savings” for a specific purpose like children’s education or retirement.

Traditionally, the customer focus in Pakistan has been on the savings aspect. That’s because the agency sales force of all life insurers invariably sells savings-oriented policies. Insurance sold through banks, commonly known as bancassurance, is also geared completely towards products that revolve around the savings aspect.

“The last one and a half years have shown us that people are actually more concerned about their future now. They worry how their families will survive if something happens to them,” he said.

This behavioural chan­ge is reflected in the average sum assured of new policies sold in the second half of 2020 versus 2019. The amount registered an increase of 15pc, indicating that potential customers were “more focused on the protection element” — a phenomenon that Mr Ahmed says is linked directly to the uncertainty created by Covid-19.

“We also observed a surge in protection-based mass market policies distributed via alternative channels such as telecom companies, branchless banks and digital platforms,” he added while referring to small-ticket policies with premiums as low as Rs2 per day that provide insurance cover of up to Rs100,000 a month.

Published in Dawn, September 26th, 2021