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Risk pooling is why insurance works. It’s one of the industry’s most important components. A risk pool is a group of people who come together (usually at the request of an insurer) to pool small sums of money to cover those who might require money in the case of a disaster. Take, for example, Death.

Sadly, most people find thinking about mortality and insurance to be exceedingly difficult. Most Indians get insurance because they have a pushy uncle who happens to be an agent or because they want to save money on taxes. So, if you’re a corporation trying to develop and sell insurance goods, the most difficult part will be marketing them.

Insurance firms, on the other hand, devised a new strategy. They altered the insurance product’s makeup to make it more appealing. The most well-known product in the group is a ULIP (Unit Linked Insurance Product). Think of ULIPs as a combination of insurance and investing. A portion of your premium goes toward providing you with insurance coverage (decent payout in case you do die). The rest of the money is put into stocks and bonds. You will be paid the final investment corpus after the payment cycle, i.e. maturity (say 10 years), as long as you are alive at the time. To put it another way, you don’t have to die to benefit from your insurance coverage, which makes it quite enticing to the average Joe.

The majority of smart financial planners will now tell you that ULIPs aren’t very useful. The coverage is insufficient to truly assist your family in the event of a disaster, and the investment portion will not provide outsized returns because a significant portion of your payment is removed before it is invested. Customers, despite this sub-optimal allocation, always appear to believe they are getting a good deal. And the salespeople who sell these items make certain of it.

ULIPs aren’t high-margin products, despite their popularity. What are the high-margin items? Term insurance policies that pay out solely when you die are known as stand-alone policies. As a result, HDFC Life would prefer that you purchase these products rather than ULIPs. However, as previously stated, this was never an easy product to sell until last year.

Most people now believe that the epidemic would have been nice to companies like HDFC Life. After all, this was the first time a sickness has caused widespread devastation on a national scale. Almost everyone had a close call with COVID-19, and common sense would suggest that this would prompt individuals to purchase life insurance.

However, the first few months of FY21 did not go as planned for most people. Agents were unable to see their clients. Overnight, walk-ins vanished, and brokers struggled to transact business online. Even though people began to see the value in purchasing life insurance, they were unable to do so owing to external factors.

However, when the country began to open up, sales of HDFC Life increased. Fear and paranoia influenced purchasing decisions, and a push product became a pull product. In comparison to FY20, HDFC Life’s revenue increased by 140 percent. While this figure may appear impressive, keep in mind that investment income accounted for around 45 percent of total revenue (because of market conditions last year). Despite this, the company saw a significant increase in premium income, and everything on the top line looked good.

The bottom line, on the other hand, was a little different. Due to an increase in claims, net profit only increased by roughly 5%. These claims cost HDFC Life a lot of money to settle. It only gets worse. HDFC Life paid out 70,000 claims worth 1600 crores in the first quarter of FY22, which ran from April to June 2021. That’s about three times what they paid in the same quarter the previous year. They’ve also set aside another 700 crores for claims that may arise in the coming quarters. Overall, this has had a noticeable influence on the company’s bottom line, which may account for the current situation.

People have finally reached the point where they are willing to purchase life insurance plans. Not just as a way to save money on taxes, but also to protect their loved ones while they are away. It’s a desirable location to be in, but it comes with a price. The second wave, as well as a potential third wave, could further erode the bottom line. Life insurance policies are more waterproof than health insurance policies, which provide insurers with a lot of leeway in denying claims. It’s quite difficult to fight a death claim’s settlement. Insurers don’t have much of a choice but to pay out on your claim. As a result, they must be highly selective about the kind of people they cover.

That’s exactly what we’re seeing right now. Risk underwriting criteria are currently being revised by insurers. They have limited the maximum coverage for some categories of people based on their work, and most consumers must now undergo medical examinations. While there is a rush for pure protection high margin products at the moment, insurers must be especially cautious about the type of risk they are taking on. And if HDFC Life manages to walk this tightrope successfully, these short-term results may not mean as much in terms of the company’s long-term goals.

After all, they’re still one of the country’s top life insurers.