Month: May 2021

Over the past one year, the Indian health insurance industry has seen several changes in consumer behaviour and attitude towards insurance. Covid-19 has brought to light the fact that a significant part of India’s population depends on their savings to meet the rising medical costs.

The Indian Economic Survey recently pointed that 65 per cent of Indians support their medical costs through ‘out of pocket’ expenses. The pandemic has certainly emphasised the need to buy health insurance because of the growing financial burden, which is because of high healthcare costs versus a reduced income or loss of livelihood due to Covid.

Overall, the health insurance industry observed some new trends and shift in consumer perceptions after the pandemic.

Prior to the pandemic, consumers viewed health insurance covers as a sickness expense mitigation tool. Although this perception still exists, there has been an increased awareness about the need to buy health insurance. This is due to the high hospitalisation costs incurred by several individuals and families. This factor majorly influenced many to reconsider and buy health insurance. People also realised that their dependency on an employer-provided insurance policy was not sufficient. Therefore, buying Corona Kavach and Corona Rakshak policy seemed pertinent.

Holistic approach

Some consumers also realised that buying a comprehensive cover is a better choice because it extends a holistic healthcare approach with wider coverage against diseases, pre-existing conditions or even future lifestyle conditions. Thus, many consumers have started viewing health insurance as an essential investment that brings in a wholesome health cover.

We have also seen a category of evolved customers, who are getting more health-conscious, and their motivation to stay fit has increased. Despite lockdowns and general stifling conditions, some customers have adopted digital forms of wellness such as following app-based fitness regimes, practising yoga over video, and even building a high-tech gym inside their home. As per E&Y’s recent study of ‘Life in a Pandemic’, more Indians are becoming health conscious – 80 per cent of the respondents are improving their eating habits and 33 per cent are doing some form of workouts at their home.

A lot of customers want to move from a basic health protection plan (such as traditional indemnity products or hospitalisation covers) to a comprehensive health cover with wellness benefits for self and family –this also gives financial incentives/rewards for leading a healthy lifestyle.

Proactive role

They want to see insurance companies play a more proactive role and actually help them maintain a healthy lifestyle. We see this trend as a win-win situation for both customers and insurers. If customers are healthy, the claims will inevitably go down over a period of time and large pay-outs by insurers will become less frequent. This will also enable insurance companies to offer more product add-ons to customers such as chronic care management programmes for customer with lifestyle conditions, wellness coach for customers with pre-existing conditions, and counsel based on digital health data of those who have just started their health journey. Prior to March 2020, millennials typically used to be quite reluctant to buy health insurance. Their averseness stemmed from the fact that they did not view themselves as sick or in need of protection from medical expenses. The pandemic shattered the perception of the youth being immune to sickness and related health risks. The ongoing second wave has underlined this further; Niti Ayog has estimated that 32 per cent of patients during the second wave have been below 30 years of age.

This ‘age no bar’ factor has pushed millennials to view insurance as a fundamental tool to protect from likely medical expenses. In recent weeks, we have already received and continue to get many queries from millennials. We also saw a surge in purchases of products that offer comprehensive benefits and health returns. If health insurers have transitioned to remote sales and service teams, customers, too, have become quite adept in availing digital services in every step of the typical health insurance process: from comparing policies, buying and consultations to filing for claims. Customers have now started extensively using their health insurers’ apps and website for accessing information and processing requests. We expect this rise in use of digital services to be a permanent fixture in the domestic insurance industry.

Digitalisation

Due to the increase in digitalisation, the industry can now bring in several benefits such as telemedicine, accelerated use of technology and data exchange. Insurers can now create specific products for different categories of customers and also different categories of expenditure. So, we now see the increase in launch and sales of byte-sized contextual health insurance products on digital platforms for first time buyers so that they experience insurance without large commitment. The present scenario can be used as a great opportunity to expand the health insurance offering by making it more promotive and preventive.

But we have many more miles to go. We, as a country, still suffer from a huge lag in health insurance penetration. The Sigma report by Swiss Re indicated that the insurance penetration in India for FY20 stood at 3.78 per cent, which is significantly low compared to the global average of 7.23 per cent. Moreover, the non-life segment only constituted 0.97 per cent of the total Indian penetration.

(The writer is CEO, Aditya Birla Health Insurance Company Limited)

Shobha Roy

The spurt in fresh infections following the second wave of Covid-19 pandemic and the lockdown being announced in several States mayimpact the collection efficiency of microfinance institutions.

Industry experts, however, feel it is still too premature to gauge the exact impact on loan growth and repayments, as there is still a lot of uncertainty around when the second wave will peak out.

According to Alok Misra, CEO and Director, MFIN (Microfinance Institutions Network), the first quarter is likely to be tepid as there is still uncertainty, but going by various mathematical and statistical predictions, the curve is likely to flatten out in end May or early June. Post that there could be a pick-up in business activity, given that there is a lot of pent-up demand.

“We need to understand that there is no national lockdown and, in all States, where mini containment or other restrictions have been announced, the governments have declared NBFC-MFIs as providers of essential services.

“Though there is stress in some rural pockets and business containment, most of them also work in production of essential goods and services and those are going on, and we are also seeing credit demand from customers,” he said.

And considering the last five quarters there is lot of pent-up demand, so that will come up by Q2 and Q3 of this fiscal.

“So, if the second wave dies down by end May/ early June and unless there is a third wave, which could then upset the apple cart, considering the last five quarters’ demand and given that there is need to build livelihoods, we should see a good demand and an improved business environment in Q2, Q3, and Q4 of the current fiscal,” Misra told BusinessLine.

Credit growth to pick up

The second wave is troublesome for the sector as a larger proportion of borrowers and employees have been affected by Covid; however, if it peaks by this month-end and starts tapering off and a larger proportion is vaccinated, then the effect of the pandemic on the sector will not be that significant.

However, if the pandemic persists for a longer time and vaccination drive falters, there could be issues for the sector, said P Satish, Executive Director of Sa-Dhan, an RBI-recognised self-regulatory organisation for MFIs.

On credit growth, he said: “ Loan growth was muted last year due to liquidity issues, not due to the lack of demand. Last year, only about 40 per cent of MFIs received moratorium from their lenders.

“So, the available funds were used up to meet repayment obligations rather than expand the credit flow.”

Satish observed that if liquidity is ensured by the RBI and government through appropriate measures by sensitising the banking sector and by giving necessary directions to NABARD and SIDBI and their subsidiaries, then the credit growth will be substantial this fiscal.

According to Shalabh Saxena, MD and CEO, BFIL (Bharat Financial Inclusion Ltd), given the overall operating environment and the fact that the basic demand in the economy is intact, the situation should return to normalcy very soon. Moreover, the lessons learnt last year will help the sector effectively plan for any emerging scenarios in future.

“We anticipate rural demand to remain healthy on the back of a normal monsoon. We are optimistic that the above-mentioned factors will translate into solid growth for BFIL, given our strong presence in Bharat,” he said.

Impact on collections

According to a recent report by ICRA, with the Covid-19 pandemic still not under control as reflected by the sharp increase in the rate of infections in some regions in the last one-and-a-half months, the risk perception for the microfinance industry remains high.

Though some States have classified the microfinance industry as an essential activity, the cash flows of borrowers may be affected due to the restrictions/ lockdowns, thereby affecting their repayment ability. Moreover, the risk of infections spreading faster in other regions and increased restrictions/ lockdowns will impact collections.

The sector’s collection efficiency is estimated to have stalled at 90-94 per cent in the past few months compared to the pre-pandemic level of 98-99 per cent.

“Rapidly rising Covid-19 infections for the last few weeks have put the country’s critical healthcare infrastructure under severe strain.

“Several States and Union Territories have either imposed lockdowns or have placed significant restrictions on people movement and gatherings to curb the spread of pandemic. This is creating disruptions in the economic activities and impacting the field operations of MFIs,” said Sachin Sachdeva, Vice-President and Sector Head, Financial Sector Ratings, ICRA, in the report.

Consequently, the industry is witnessing a reduction in collections and the recovery seen in Q4 FY21 is being challenged again.

ICRA estimates a sequential drop of 8-10 per cent in collections in April 2021 and it may dip further if infections continue to rise and more restrictions are imposed across locations.

A Crisil report suggests that while NBFC-MFIs were better prepared to deal with the situation – because of their experience with the lockdowns of last fiscal and by weathering other storms of the past – their ability to manage asset quality and maintain healthy collections would bear watching.

The fact that many of the larger MFIs have strengthened their capitalisation over time and are also maintaining higher liquidity levels will help support their efforts to manage the situation, it added.

RBI measures

The RBI move to recognise loans given by small finance banks to smaller NBFC-MFIs as priority sector lending will help ensure liquidity to the sector.

This apart, by allowing lenders the flexibility to restructure microfinance loans on a case-to-case basis, will also help provide relief to stressed clients.

“Seeing the severity of the situation, the RBI Governor has proactively met sector representatives and followed it up with possibly first steps – he mentioned in the beginning that the policy response will be calibrated, sequenced and well-timed.

“Liquidity is the key and I hope along with the April announcement of ₹50,000 crore support to All India Financial Institutions (AIFIs) and today’s measure will help the sector. We also expect that with changes in the evolving situation, the RBI will keep introducing newer relief measures,” said Misra.

MFIN will also keep engaging with the RBI on creating a systemic support for allocating a specific sub-total out of the overall liquidity support for the smaller NBFC-MFIs. It also hoped that the pricing issue would also be resolved soon.

Tweaking business model

While MFIs have been bringing in small and steady changes in their business model ever since the demonetisation days, the emphasis is likely to increase on low touch and cashless transactions moving forward, said Manoj Kumar Nambiar, Managing Director, Arohan Financial Services.

“Our customers have bank accounts but no banking habit and for that the neighbourhood kirana shops have to be enabled to facilitate transactions.

“The BC (business correspondent) model has to become more viable, and lenders will have to stop collecting repayments in cash. Eventually, it has to be that way though it may take some time,” he said.

According to Satish, since loans are non-collateralised, there is requirement of collateral substitute like joint liability. So, the JLG model will continue. There will, however, be improvisations in group meetings, loan processing methodologies and collection and repayment systems, where there is likely to be greater adoption of digital modes.

Life Insurance Corporation of India’s (LIC) holding in nearly 300 companies has come to all time low, a study by Primeinfobase.com revealed on Monday. However, value is at all-time high. Concurrently, holding of Mutual Fund (MF) in various companies also declined for fourth successive three-month periods.

The study comprises of 296 companies where LIC has holding of at least 1 per cent.

In these companies, the study said, LIC’s holding slipped to an all-time low of 3.66 per cent as on March 31 from 3.7 per cent as on December 31, 2020. “this was on account of profit booking by India’s largest institutional investor,” Pranav Haldea, Managing Director of PRIME Database Group said which hosts primeinfobase.com. The insurer held all-time high holding of of 5 per cent as on June 30, 2012.

However, value of the holding in rupee terms reached an all-time high of ₹7.24 lakh crore in quarter ending March 31, 2021. This shows an increase of 6.30 per cent over previous quarter. It may be noted that Sensex and Nifty rose by 3.70 and 5.10 per cent respectively during this period. LIC also continues to command a lion’s share of investments in equities by insurance companies (76 per cent share).

Holding of Insurance companies as a whole also declined to a 5-year low of 4.80 per cent as on March 31, 2021, down from 5 per cent as on December 31, 2020. However, in rupees value terms, it went up by 3.09 per cent from the previous quarter to an all-time high of Rs 9.48 lakh crores as on March 31, 2021.

MF investment, outflows

In order to analyse investment pattern of the mutual fund, the agency analysed shareholding patterns filed by 1,639 of the total 1679 companies listed on NSE (main board) for the quarter ending March 31, 2021. It found that holding of domestic Mutual Funds in companies listed on NSE also reduced to 7.23 per cent as on March 31 down from 7.42 per cent as on December 31, 2020. According to Haldea, holding of Mutual Funds has now declined for four consecutive quarters, after 24 quarters of continuous rise (from 2.81 per cent as on March 31, 2014,to 7.96 per cent as on March 31, 2021).

Net outflows by domestic Mutual Funds stood at ₹26,810 crore during the quarter, as retail investors booked profits. In rupees value terms, the holding of domestic Mutual Funds went up by 4.81 per cent to ₹14.30 lakh crores as on March 31 from ₹13.64 lakh crores on December 31, 2020.

On the back of decrease in holdings of Mutual Funds and Insurance companies, holding of Domestic Institutional Investors (DII), which includes domestic Mutual Funds, Insurance Companies, Banks, Financial Institutions, Pension Funds, as a whole, also decreased to a 10-quarters low of 13.03 per cent as on March 31 from 13.56 per cent as on December 31, 2020. Net outflows from DIIs stood at ₹23,124 crore during the quarter. In rupees value terms, DII holding went up to an all-time high of ₹25.75 lakh crore as on March 31, an increase of 3.27 per cent over the last quarter.