Premium rates for term life insurance policies could go up by 15-20 per cent in April as reinsurers drive a hard bargain with life insurance companies in renewing contracts amid rising risks and losses.

Insurance companies have a risk sharing arrangement with re-insurers with the former transferring a part of the risk off its book.

Swiss Re, Munich Re, Lloyd’s India, Allianz, AXA are among the key players in the reinsurance market.

The price of term life insurance products had gone up in April 2020 and changes in reinsurance rates drove the premium for term policies by 25-30 per cent.

The insurance industry is expecting another round of increase next month. The increase will be primarily to cover the rising risks because of the Covid-19 pandemic. Moreover, industry observers point out that high competition among life insurers to boost new business premium and increase market share has resulted in term policies being significantly cheaper in India compared with similar products overseas.

“Because of competition over term policies, insurers in India were simply reducing prices to an unrealistic level. When the claims have started happening and reinsurers — many of whom are global players — are losing money, they are insisting on higher rates as no one is willing to take a loss,” said Arvind Kumar Khaitan, managing director of Salasar Services Insurance Brokers Private Ltd.

“Covid has hit reinsurers all over the world. It may remain like this for the next 2-3 years,” he said.

According to data from insurance regulator Irdai, the total loss of all foreign reinsurance branches was Rs 1,115 crore in 2019-20 against a profit after tax of Rs 10 crore in 2018-19. The incurred claim ratio of reinsurers increased to 98.60 per cent in 2019-20 from 89.51 per cent in 2018-19.

The incurred claims ratio in the life segment was a staggering 417.63 per cent in 2019-20 and the pandemic has only heightened the risk profile of the industry and squeezed the bottomline of reinsurers.

While the insurance companies remained tight-lipped about the increase, industry sources said that at least two private players may face termination of contracts from a global reinsurer unless the revised prices are accepted. “The prices have to match the mortality experience. Term policies have wafer thin margin and the market is extremely competitive. So the increase is likely to be passed on,” said an industry source.

Sources also said the reinsurers are in favour of changes in the policyholder onboarding process. Instead of tele check-ups, reinsurers are insisting on physical check-ups of new policy buyers for better risk selection.