By Annmarie Geddes Baribeau
Two years of a worldwide coronavirus pandemic is leaving its imprint on life insurance
It has been two years since former President Donald J. Trump declared a national emergency in response to the quickly spreading COVID-19 pandemic. By St. Patrick’s Day 2020, much of America was in lockdown.
After two years of confusing mitigation measures and the deaths of nearly 1 million people in the United States, Americans recognize that like the aftermath of the 9/11 attacks in 2001, there is no going back to normal. The way forward, President Joseph R. Biden said in late January, is to learn to live with the coronavirus.
Life insurers watch infectious diseases come and go. None, however, has made an impact like COVID-19. In 2020, U.S. life insurance companies in the United States paid the highest amount of benefits in a single year, according to the American Council of Life Insurers (ACLI). The $90 billion paid to beneficiaries represents a 15.4% increase from 2019 to 2020, representing the highest year-to-year climb since 1918, when deaths from the Spanish flu pandemic drove a 40.9% benefit increase from 1917.
While industry advocates point out the fiduciary strength of life insurers, there is a lot about the coronavirus to contemplate. COVID-19 is far from over. The medical technology deployed in RNA vaccines has saved countless lives in the short term, but the long-term impact is unknown. The life-changing effect of mitigation, new variants, long-term COVID, and initial injuries and deaths from the vaccines are a likely prelude to future claims.
Although excess mortality—which reflects the death toll increase from a prior year or more—from COVID-19 has resulted in a lower percentage of lives lost compared to the Spanish flu, the results are no less alarming. When comparing the number of fatalities provided by the Centers for Disease Control and Prevention, excess deaths rose by 17% from 2019, said Mary Pat Campbell, vice president of insurance research at Conning. There was about the same high level of mortality for the entire year of 2021, with an estimated 1% increase in the number of deaths in provisional CDC estimates in early February, she added.
COVID-19 was the third most common reason older Americans died in 2020, said Campbell, a life actuary and blogger. “The older you get, the higher number of people dying of COVID,” she added. Like age groups in prior years, senior citizens more than 75 years old died of heart disease, followed by cancer for younger seniors and the middle-aged, and accidents for those 40 years old and under, she added. Comorbidities, especially those connected to obesity and heart disease, were also major determinants of COVID-related life expectancy until vaccinations became available.
In 2021, COVID mortality shifted to younger ages as seniors had initial access to vaccines. During the summer’s “delta wave,” most COVID deaths moved from the 85+ age group to the 50- to 64-year-old group in September 2021, she said.
OneAmerica, the Indianapolis-based life insurer, made headlines in January after reporting a 40% increase in group life fatalities for 18- to 65-year-olds during the third quarter of 2021. Prudential Financial, Voya Financial, and Unum Group also reported a rise in deaths for the age group, ThinkAdvisor reported. Half of those deaths were related to COVID, Campbell said. The other half of deaths is not yet clear in the CDC data.
Models built by Risk Management Solutions Inc. (RMS) connect other demographics with surviving COVID-19. “Our analysis suggests that people with life insurance are generally less vulnerable to COVID-19,” said Ashley Campbell, a consultant with the risk modeling company. Surviving the virus, he said, reflects socioeconomic demographics such as income and education level, which correlate with better health. RMS leverages life insurers’ experience data along with pathogen characteristics, demographics, and pharmaceutical and non-pharmaceutical response factors to offer stochastic catastrophic models that support risk management and scenario testing.
Location is another factor associated with contracting and dying from the coronavirus, he said. During the spring of 2020, the peak of deaths from COVID-19 centered around New York City. Other hot spots were New Orleans, the Washington, D.C., area, Chicago, and New Jersey, she added. Non-white populations were disproportionally affected by COVID-19 as well. Hispanics in Texas were greatly affected in the summers of 2020 and 2021, she said, and in California during the winter of 2020 to 2021.
Unfortunately, it is unclear how many of the 1.1 million Americans who died from COVID during 2020 to 2021 had life insurance. LIMRA reports that in 2020, 52% of American consumers reported having a life insurance policy, such as individual or employer-sponsored products. The number of individual life policies ending in death was 2.7 million in 2020, up 10.6% from 2.4 million in 2019, Mary Pat Campbell said. For group life, about 12% of all reported claims with death dates from 2020 through the first three quarters of 2021 died from COVID-19, according to Group Life COVID-19 Mortality Survey Report, released in February by the Society of Actuaries (SOA).
“Early on in the pandemic,” said R. Dale Hall, managing director of the SOA Research Institute, “group life excess mortality percentages were lower than in the group life population.” The trend reversed in fourth quarter 2020, and since then, group life excess mortality has been higher. During 2021, excess mortality has shifted toward those under 65, he said. “This finding is significant because the group life population has a higher concentration of expected deaths in ages below 65 than the U.S. population,” he added.
For individual life coverage, death benefits rose 16.8% from $55.6 billion in 2019 to $65.0 billion in 2020, according to the National Association of Insurance Commissioners 2020 Annual Statements—provided by S&P Capital IQ Pro. For group life, the benefits increased 11.2% from $29.8 billion in 2019 to $23.2 billion in 2020.
“All-cause mortality has been higher in 2020 and 2021 than (life insurers) expected and priced for,” said Michael Pritula, managing director at QualRisk, a data and analytics and modeling firm serving the insurance industry. “And early first-quarter 2022 mortality also is projected to continue at above-expected levels.”
In 2020 and for the first time in at least 20 years, “statutory operating margins were negative for individual life insurance,” Mary Pat Campbell said. The degree of impact on individual life insurers depends on their reinsurance contracts, she added.
As for paying on claims, “reinsurance can help with some of it, but reinsurers are a very concentrated group of only about 10 companies,” she said. Reinsurers also have to be cautious because they are also backing up costs from the rising severity of cyberattacks and the most expensive six-year period of natural catastrophes ever.
Overall, cession rates for individual life insurance in the United States increased from an estimated 30% in 2019 to 32% for new business in 2020, according to the SOA’s Life Reinsurance Survey article published in July. “Current cession rates of about one-third of face value for newly issued individual life policies are well below the peak of about 66% cession rates in the early 2000s,” she said. However, she added, factors other than pure mortality risk management—including pricing, capital, and reserving regulations—spurred high cessions not seen in 20 years.
On the other side of the balance sheet, life insurance sales are up since COVID’s advent. Employers and individuals bought 43.1 million policies in 2020 amounting to $3.3 trillion in life insurance, which is a 7.9% climb from 2019, according to the 2021 ACLI Life Insurers Fact Book. The purchase boon brought total life insurance coverage in 2020 to $20.4 trillion in the U.S., up 3% over 2019 levels.
According to the SOA reinsurance article, U.S. recurring new life insurance business rose nearly 12%, from $535 billion to $598 billion, from 2019 to 2020. Keeping in mind that people can have multiple policies, the number of policies in force at the end of 2020 was 273 million—a 10.6% increase from 2019, Mary Pat Campbell said.
“There has been a very pronounced interest in buying insurance especially by younger adults,” she said. Growth of applications in the 31-to-50 age group has risen by more than 7% when comparing activity in 2021 against 2019, she added, citing information from the MIB Group. Drawing in younger, working-age consumers also introduces a challenge to life insurers if mortality for the age group continues to grow because insurers can take a bigger hit for younger risks because of insufficient time to build reserves, she said.
How much life insurers will be on the hook for COVID-related claims depends on the country’s ability to mitigate risk.Before vaccines were available to help reduce serious illness and death from COVID-19, public health officials offered a list of restrictions to prevent its spread. The SOA study, “COVID-19 Mitigations in the U.S.—September 2020 to April 2021,” looked at the efficacy of preventative measures based on weekly observations of their use in different U.S. locations. Dave Ingram, a senior enterprise risk management actuary with Actuarial Risk Management, headed up the project.
The mitigations most highly correlated with low U.S. COVID infections were avoiding large gatherings, applying special protection in hospitals that treat COVID patients, and restricting visitors at senior living facilities. The least effective measures were closing colleges or holding remote classes, announcing local level of COVID infections, and getting antibody testing for prior infection (see Figure 1).
Vaccines became available at a record pace during the winter of 2020 and 2021. The hope was to create vaccine-initiated herd immunity. The goal has been elusive due to mixed reception of the jabs by Americans.
Before mandates Biden introduced in September for federal workers and others, about 58% of the population was fully vaccinated—either double jabbed by Pfizer or Moderna vaccines or getting a single Johnson & Johnson shot. From Sept. 9, 2021, until the U.S. Supreme Court struck down the mandates on January 13, 2022, another 10% of Americans became fully vaccinated, according to statistics at Our World in Data.
Encouraging Americans to get the COVID booster shot is taking longer. From January to early May 2021, about 42% of Americans were fully vaccinated. As of early February 2022, the same percentage of Americans had received a booster shot since its availability in September 2021. Many Americans are not enthusiastic about the booster.
Despite COVID’s continual impact, it “is not the illness that will devastate the life insurance industry,” Ingram said, “Maybe it would have been if our response had not improved from 2020.” Mortality could been much worse without the vaccines, according to a study by The Commonwealth Fund released in December. The organization’s research estimated that the U.S. vaccination program has prevented about 1.1 million deaths and averted more than 10.3 million hospitalizations from Dec. 12, 2020, to Nov. 30, 2021.
COVID-19 is here to stay, Ashley Campbell of RMS predicted. If so, said Mary Pat Campbell, the question is whether it will become part of the permanent mortality mix or part of the infectious risk, because that would mean resetting base mortality levels. Even though SARS-CoV-2 will be endemic in the current state, Ashley Campbell said, and his firm’s COVID-19 projection model will focus on the risk associated with a new variant that evades the immune system, which is the true risk to insure.
Another key concern, Hall said, is how treatment lags for medical conditions beyond COVID might impact mortality rates now and in the near term. “This lack of medical treatment may lead to continued higher mortality levels for the next several years,” he added.
Life insurers might rethink whether they can cover pandemics, especially if they become more common. Years ago, Ingram applied epidemiological models for a prominent reinsurer and confirmed that pandemics were the largest covered risk. It is possible, he said, that life insurance policies, which exclude coverage for acts of war, could stop covering deaths from pandemics if they were believed to be much more severe than COVID, he added. The property/casualty insurance industry realized in the 2010s that pandemics were too expensive to cover. Pandemic coverage is available as a rider, but it is expensive.
COVID-19 has caused enough attention that life insurers are looking into more sophisticated catastrophic modeling for anticipating losses. “It is clear that mortality is less stable than industry models have assumed,” Pritula said. “Life insurers will need to adjust their models to add a catastrophe factor, much as property-casualty models have been doing since the early 1990s.”
Until 2020, said Ashley Campbell of, “a lot of insurers took a frequency-severity approach, relying primarily on the 1918 Spanish flu as a broadly 1-in-200 scenario and making adjustments to reflect expected severity given advances in medicine since then.” Overfitting to a single event such as the 1918 Spanish flu can result in poor model performance, he said. For example, scientific evidence suggests that the lethality age profile of an individual is dependent on their childhood exposure to influenza, making the lethality age-profile very different than 1918, he added. RMS introduced its infectious disease model in 2006 and insurers became much more interested since 2020, he added.
Anticipating complex factors in models allows scenario planning. It was understood, Ashley Campbell said, that government can affect the impact of infectious diseases. What was not expected, he said, was the variance among nations and their jurisdictions.
After two years of COVID-19 and nearly 1 million related deaths in the United States, Americans are sorting through what it means to live with the coronavirus as President Biden suggests. As jurisdictions mull removing COVID restrictions, it is unclear how many more Americans will die as the nation acquires natural immunity from the ultra-contagious omicron or future variants.
Since the life insurance industry is well-funded due to investing previously collected premium and includes comorbidity factors in rate making, it is generally weathering the COVID storm—so far. Presuming that COVID’s impact continues to fade, its financial impact on life insurance should decline.
COVID is leaving an imprint, but its connection to future deaths is unclear. Delaying treatment for non-COVID patients should make an impact on life insurers, as will so-called long COVID.
Before COVID began, lost lives from drug abuse were already on the rise, and that trend continues. Strict restrictions and significant disruption of normal life has taken a mentalhealth toll on Americans, partially explaining why deaths from drug abuse and other causes are likely to increase. The COVID experience also reinforces the value of tackling comorbidities that leave Americans vulnerable to much more than COVID.
Although life insurance costs associated with COVID-19 do not appear to be a deal-breaker for carriers, the COVID effect makes it reasonable to consider new assumptions and methods in reserving and rate making.
Annmarie Geddes Baribeau has been covering insurance and actuarial topics for more than 30 years. Her blog can be found at www.insurancecommunicators.com.
 https://www.cdc.gov/nchs/nvss/vsrr/COVID19/index.htm Table 1, click on “Yearly” to get the estimated number for 2021.
major-vaccination-policies/  I entered “timeline of COVID vaccination availability” and found a tool top of web page from “Our World in Data.”