2020 will be remembered as the year when a virus pulled the brakes on the entire world. With COVID-19 infecting millions of people around the globe and the subsequent lockdowns impacting the health and income of people, most businesses have suffered too. The insurance sector is no different. If we look at the growth of the non-health insurance segment, until February 2020, it was growing at the rate of 13 per cent in the financial year 2019-20.

India went under complete lockdown from 25th March 2020. Over the subsequent weeks, there were changes in the guidelines and rules for the conveyance of vehicles on the road. Especially with regards to insurance, the Government provided various relaxations and extensions in the expiry date. Fewer people bought new vehicles, with the sale of all vehicles, including two-wheelers, taking a massive hit.

So how has the lockdown and fall in the sale of vehicles affected the vehicle insurance sector, prominently the two-wheeler insurance? Let us have a look at the two wheeler insurance sector and discuss the impact of the lockdown on it.

Impact of the COVID-19 Lockdown on the Two-Wheeler Insurance Industry

Motor insurers are having a tough time battling factors like the premium reduction for both old and new cars, fixed costs, reduced returns on investment income, and an overall slowdown of the economy. In 2019-20, the auto industry experienced a drop in sales leading to a corresponding drop in motor insurance policies too. However, with renewals boosting the income, the motor insurance segment had a lesser impact. Since the lockdown was implemented in March 2020, the sale of vehicles, both two-wheelers and four-wheelers, has plummeted.

Hence, currently, the two-wheeler insurance sector is on a downward slide. While the drop in the sales of new vehicles is impacting the number of new policies being sold, most people have been deferring their bike insurance policy renewals to conserve cash. This is a huge reason for concern for this segment.

Ever since the lockdown began, the number of vehicles on the road dropped drastically. This meant fewer accidents and claims. While this might sound like good news for the insurance companies, it also resulted in bike owners not finding the need to renew their policies. Also, most insurance companies use independent surveyors to assess the vehicular damage in case a claim is filed. However, with the lockdown in place, surveyors would not be able to move out and conduct the survey either on time or reach there at all. Hence, the claim settlement process will be impacted.

The Unlock Process: How will the relaxation in lockdown affect the insurance sector?

This has been an unprecedented year for many reasons. Nobody could have imagined a disease bringing the world to a grinding halt. As countries around the globe have slowly started easing the lockdown restrictions, the social distancing measures are expected to last for a long time. Hence, two things are possible:

1. With people trying to avoid public transport to ensure social distancing, there can be a surge in the number of private vehicles on the road. This can lead to more traffic on an already burdened road network in our country and result in an increase in the number of accidents. This would mean more claims and a subsequent impact on insurance companies.
2. Many people deferred renewal of their two-wheeler insurance policies during the lockdown. With the lockdown lifting, and people resuming travel and preferring their personal vehicles, there will be a surge in the renewal of lapsed policies. This will positively impact the insurance sector, with the inflow of bike insurance renewal premiums and even penalties for lapsed policies.
3. Most people have experienced a major drop in family income. As the country ‘unlocks’ with social distancing measures still in place, people would want a personal vehicle to avoid travel by bus or train or metro. Hence, the demand for cheaper or used cars and two-wheelers is expected to increase. This might result in an increase in the number of sales of two-wheelers. Since third-party liability insurance is mandatory for all vehicles in India, this can result in a sharp increase in the number of policies being sold.

The New Normal: Will the rising work-from-home model affect the insurance sector?

While most people have been eagerly awaiting a vaccine for COVID-19 under the hopes that life-as-we-knew-it would return, some experts believe that this pandemic will change our world for good. A large percentage of people and/or organizations might start preferring working from home. If that becomes a trend and people reduce commuting, then it can have an indirect impact on the motor insurance companies too. With fewer people commuting, the need for private conveyance goes down, which in turn implies a lower sale of insurance policies.

While predicting any outcome right now is not possible, the current state of the two-wheeler insurance segment is in dire need of a boost in the arm to sustain and remain operational when the lockdown is completely lifted.

Conclusion

While the economy might take some time to recover from the impact of such a long lockdown, it might be a while before people get back to earning their regular income again. Hence, some people might decide to turn to insurance to protect themselves against any financial liability due to loss or damage to the vehicle. On the other hand, some bike owners might just stick to the mandatory third-party liability policy and save on the premium costs. Auto insurers will also have to rise to the challenge and create offers or discounts to ensure that they get a regular flow of new policyholders and renewals to keep the ball rolling. 

With the entire country (and the world) nudging itself out of the lockdown, it will be a slow and careful approach towards normalcy. We can only hope that the economy survives with minimal impact and helps get all businesses back on their feet soon.