Corona Effect: Is Your Life Insurance Company Going to Collapse???


Corona Virus has created lot many fears in our minds and the most common fear we are developing is the uncertainty of everything around us in the near future.

I came across a query from one of my clients asking what if his life insurance company cannot afford to settle the claims.

This concern is very common and even you might have thought about the situation wherein if most of the customers of your life insurance company die due to outbreak of Covid-19 and your company may not be in a position to settle everyone’s claims.

The happy news is that IRDA (Insurance Regulatory and Development Authority of India) strictly maintains the record of Solvency Ratio of all the insurance companies. And, because of this clause in existence you can stay confident that all the claims of your life insurance company will be settled and honored.

What is Solvency Ratio?

IRDA stipulates that all insurers - Life, Health and General—maintain a minimum solvency ratio of 150%. Solvency margin, captured in this ratio, is the excess of assets over liabilities. Hence, any number above 150% indicates that the insurance company is financially stable. Higher the Solvency Ratio, better the comfort.

Rules of investment

Besides problems related to financials and governance issues, wrong investment decisions, too, could precipitate a crisis. To prevent such crises, insurers are required to follow certain investment norms. For example, insurers cannot invest in debt securities with a rating below AAA. 

If any asset is impaired and the rating falls below AAA, it must be marked to market (MTM). The insurer cannot hide the fact. Any MTM loss must be borne by shareholders – the policyholders remain protected.


Conclusion

So…. You need to stay relaxed that all your insurance policies are safe and will be honoured as per the contract terms.

All insurance companies are good, and all their products are designed with lot of attention. What you should look at is, the solution or the product which suits your requirements and needs.

Stay Safe…

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