The crisis in West Asia is not just another geopolitical flare-up; it is expected to leave a lasting impact on energy markets, supply chains, strategic investments in energy infrastructure as well as new-age digital infrastructure, and the way business is conducted globally. This may further influence inflation trajectory and interest rates in many economies over the short to medium term, causing volatility and, in turn, raising concerns about the financial security of an average Indian household. Life insurance can play bedrock of financial resilience in such uncertain times. Indian life insurance industry is optimally positioned to deal with all the challenges posed in these tough times.
Life insurance offers financial protection and wealth creation. Today, Life insurance companies with strong balance sheets, prudent underwriting practices, and disciplined asset management within ever-evolving regulatory framework are actively offering financial protection to their policyholders. The ongoing crisis has triggered an increase in scrutiny and reinsurance costs, especially West Asia region, leading to more cautious underwriting of risks. However, it also strengthens underwriting standards, capital efficiency, and long-term sustainability across the life insurance sector. It further reinforces extant prudent risk management framework.
These aspects work well in the interest of the policyholders, though the volatility in financial markets may be unnerving for many households. The possibility of increased inflation, lower-than-expected savings, and a slowing global economy may delay consumption and also deter many from investing. However, these uncertain times also emphasise the need of life insurance, and investment-oriented life insurance products can be a prudent choice.
Volatility in financial markets offers more attractive investment opportunities. Lower asset prices can be capitalised upon by deploying long-term savings. For example, Indian equities are quoting at attractive valuations. As economy recovers, strong growth in corporate earnings may reward investors over the medium to long term. Professionally managed, diversified portfolio offered by unit linked insurance plans (ULIP) can offer healthy risk adjusted tax efficient returns over the long term, along with life cover.
Traditional investment avenues such as bonds are offering relatively higher yields. Insurers are able to deploy policyholder’s funds at current attractive yields. Though inflation is expected to compress real yields (the rate computed after deducting the rate of inflation from the nominal rate) for investors, over the medium term, there may be attractive re-investment opportunities. Traditional guaranteed income solutions can benefit from these developments. Insurer’s sustained focus on cost efficiencies and product design should ensure that the buyers strike a balance between protection and wealth creation while fulfilling their insurance needs.
Insurers are realigning their investment portfolios and product offerings to suit changing times. As an industry we are taking significant efforts to spread awareness about the evolving risk environment and the need for insurance in each household’s financial portfolio. Customers should reassess their life insurance cover and take necessary actions to fill any gaps. Regular reviews and the purchase of adequate life insurance cover can help keep individuals on track to achieve their financial goals.
