Life insurance companies are bracing for a hit in their new business premiums this month as individuals prioritise their requirements.

According to industry estimates, new business premium collected in March accounts for 17-20 per cent of the total new business premium collected annually.

In the first 11 months of the ongoing financial year, new business premium underwritten was Rs 2.33 lakh crore compared with Rs 2.14 lakh crore in the corresponding period of the previous year.

“With the lockdown in place, a large section of the people are facing movement and business related restrictions. March is a key month with many prospective buyers planning to purchase their insurance keeping in mind the income tax related exemptions under section 80C of Income Tax Act,” said an LIC executive in Calcutta.

Research firm Icra anticipates a reduction in the growth rate of new business premium, as well as an increase in claims on the market linked products side such as Ulips, who valuation has taken a hit on account of the market crash.

“In the event if India reaches a world average infection rate of 100 people per 1 million population, this would result in a mortality rate which would not increase the death claims by a large margin.

However, for the savings product there could be a larger impact of surrender claims especially for Ulips, where investors will see large erosion in their funds, because of the equity market declines,” Icra said in a note on Thursday.

According to Icra, marked-to-market losses on their equity investment would also adversely impact the insurance companies’ solvency parameters.

“Predominantly, a large part of the equity investment portfolio of the life insurance industry is with LIC (around Rs 4.5 lakh crore till the end of the first quarter). A 40 per cent correction in the equity capital market would result in a MTM loss of around Rs. 58,000 crore for LIC,” Icra said.

It said the impact for the private sector players would be relatively lower.

IRDA directive

Insurance regulator IRDA has asked life insurers to enhance the grace period for payment of renewal premium by an additional 30 days if desired by the policyholders.