Evolving Landscape: How Covid-19 Altered the Life Insurance Market

As Americans brace themselves for the third winter amidst the Covid-19 pandemic, many still grapple with ongoing health and financial challenges, which extend to insurance disputes concerning long Covid treatments and disability claims. However, when it comes to the life insurance industry, experts assert that the enduring impacts are yet to be fully comprehended.

“It’s an ongoing process,” clarified Michel Leonard, Chief Economist and Data Scientist at the Insurance Information Institute. “We currently lack sufficient statistical data.”

Confronted with a profound loss of lives, insurance companies witnessed a surge in payouts during the pandemic. Nevertheless, the life insurance sector is currently wrestling with the consequences of changes in mortality rates and how these shifts might influence the underwriting procedure.

The Uncertainty Surrounding Mortality

Stuart Silverman, Principal and Consulting Actuary at Milliman, an actuarial and consulting firm, highlighted that the Covid-19 pandemic has impacted the life insurance industry in diverse ways, as outlined in a June co-authored paper. Two key areas of concern are “mortality assumptions,” which involve forecasting death rates, and “capital requirements,” necessary to maintain the financial stability of life insurance providers. Both factors can influence policy premium costs.

While it’s evident that mortality rates have risen since the pandemic’s onset, experts are uncertain about how Covid-related elements like preexisting conditions, compromised mental health, or deferred medical care could affect future assumptions. “There’s an element of uncertainty about how this will unfold,” stated Silverman, underlining the ongoing debates in these areas.

The Impact of “Long Covid” on Mortality Assumptions

The prospects for future mortality assumptions remain unclear for individuals suffering from the effects of “long Covid,” a term used to describe lingering health issues post-virus contraction. A report by the U.S. Department of Health and Human Services from November 21 estimated that these conditions affect 7.7 million to 23 million Americans.

“It’s challenging to underwrite something that lacks a clear diagnostic and definition,” noted Marianne Purushotham, Corporate Vice President and Head of Limra’s Data Services.

The life insurance industry is currently in a phase of significant data accumulation, gathering information on the various ways Covid may impact mortality, including indirect factors such as opioid overdoses and suicide rates. Determining whether these impacts will manifest as long-term trends poses a significant consideration, as companies may be hesitant to alter pricing if mortality rates eventually stabilize at pre-Covid levels.

Silverman added, “It will take five to ten years for us to fully comprehend the patterns emerging.”

Integration of Covid Questions in Applications

While adjustments to mortality assumptions might take time, changes in life insurance applications have been more prompt, influenced by state regulations. Since the pandemic’s onset, life insurance applications have included Covid-related questions, and this trend is expected to continue evolving.

Brendan Bridgeland, Policy Director and Staff Attorney at the Center for Insurance Research, observed the inclusion of Covid-related questions on life insurance applications since the pandemic began. These questions vary from inquiring about a history of Covid-positive tests to current diagnoses. However, there’s an ongoing process of refining and perfecting these inquiries.

Bridgeland anticipates that questions about Covid vaccination might appear on applications within the next two to three years, although he acknowledges the variation in the questions asked by different insurers.

Navigating this evolving landscape, Bridgeland advises applicants to take their time and seek clarification if needed to ensure accurate responses and avoid potential complications down the line.

Pending Regulatory Guidance

In January 2021, the Consumer Federation of America (CFA) addressed the National Association of Insurance Commissioners (NAIC) with a request for a model rule that outlines procedures for life insurance underwriters in cases of delays or denials of coverage due to Covid-19. The NAIC responded to this request during its spring 2021 meeting but indicated that more information was required before considering endorsement of a model rule.

As the industry continues to adapt to the ongoing challenges posed by Covid-19, regulatory bodies and insurance providers grapple with striking a balance between transparency, fairness, and effective risk assessment.