Life insurers adapt pandemic risk models after claims jump

Posted on Feb 14th, 2022

A coronavirus pandemic which lasts five years, another pandemic in a decade, and ever more transmissible variants are among the scenarios life insurers are predicting after COVID-19 claims jumped more than expected in 2021.

The global life insurance industry was hit with reported claims due to COVID-19 of $5.5 billion in the first nine months of 2021 versus $3.5 billion for the whole of 2020, according to insurance broker Howden in a report on Jan 4, while the industry had expected lower payouts due to the rollout of vaccines.

The increase in claims was largely down to the emergence of the Delta variant, twice as transmissible, and more likely to cause hospitalisation than the original coronavirus strain. read more

Claims rose most in the United States, India and South Africa due to the more lethal variants and a rise in fatalities or illness among younger and unvaccinated groups.

The long-term nature of life insurance products – often lasting 20 years or more – means premiums are not yet capturing the risk that deaths or long-term illness from COVID-19 will likely remain higher than previously estimated. Competition in the industry is also keeping a lid on premiums.

Actuaries say rising claims will be eating into the capital which insurers set aside to ensure solvency.

In the initial "shock" period of the pandemic in 2020, the insured U.S. population suffered 12% more deaths than average, according to research from life insurance trade association LIMRA shared with Reuters.

As the pandemic continues to surprise with the Omicron variant now becoming dominant, insurers, reinsurers and specialist risk modelling firms are looking to the future.

HOW LONG, WHAT'S NEXT?

With the emergence of the even more transmissible Omicron, COVID-19 vaccine manufacturer Pfizer (PFE.N) has said it does not expect the pandemic to subside to an endemic state globally until 2024. read more

AIR's model anticipates that the pandemic, caused by a virus first identified in China in December 2019, could last five years.

Excess deaths could continue as the virus becomes endemic, similar to influenza which causes many deaths each year despite vaccines.

More deaths or long-term illnesses will require insurers to set aside more reserves to pay claims, and may force them to raise premiums.

Insurance risk experts also say the opportunities for transmission between humans and animals, high levels of global travel, increased urbanisation and climate change impacts such as deforestation and disease-carrying mosquitoes mean pandemics could become more frequent.

Original article: https://www.reuters.com/business/life-insurers-adapt-pandemic-risk-models-after-claims-jump-2022-01-13/