The year 2022-23 has seen a surge in the surrenders and withdrawals of life insurance policies. It has increased by 25.62 per cent to Rs 1.98 lakh crore compared to Rs 1.29 lakh crore in 2021-2022. The jump has been attributed to several factors ranging from rise in inflation and issues related to mis-selling of insurance policies.
According to the 2022-2023 annual report of Insurance Regulatory and Development Authority of India (IRDAI), the life insurance sector disbursed total benefits amounting to Rs 4.96 lakh crore, approximately 64.08 per cent of the net premium. Interestingly, the benefits paid due to surrenders or withdrawals rose remarkably by 25.62 per cent to 1.98 lakh crore. This increment was dominated by public sector insurers, accounting for 56.27 per cent of the total, with the remaining being accounted for by private insurers. Moreover, out of the total surrender benefits, 62.51 per cent were from unit liked policies for private insurers and 1.56 per cent for the public life insurer.
Compared it to the previous year that total benefits paid in the fiscal year 2021-22 stood at Rs. 5.02 lakh crore, approximately 73.10 per cent of the net premium. This included a major contribution from LIC, who accounted for 70.39 per cent of the total payments, with the remaining 29.61 per cent coming from private players. The surrender benefits for 2021-22 were centred primarily on ULIP policies, with LIC paying out 1.96 per cent and private insurers at a high of 78.29 per cent.
Swiss Re forecasts global premiums for life insurance to grow by 0.7 per cent in real terms in 2023 in comparison to the 10-year trend of 1.3 per cent growth. High inflation leading to high level of policy surrenders is likely to impact the profitability of the sector, as per the IRDAI report.
The report also provided insights into death claims in the individual life insurance sector for the year 2022-23. Out of the total 10.76 lakh death claims, 10.60 lakh were settled by companies, equalling a total payout of Rs. 28,611 crore. Meanwhile, there was a rejection of 4,340 claims amounting to Rs 24 crore. According to statistics, the industry’s settlement ratio decreased to 98.45% in 2022-23 from 98.64 % in 2021-22.