The contrasting impact of COVID-19 on UK term assurance experience

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The CMI Assurances Committee reports regularly on the claims experience of policyholders with term assurances issued by UK life insurers. Our most recent analysis – covering the years up to 2019 – has recently been issued to CMI Subscribers alongside Working Paper 152.

That paper also contains indicative analysis of experience in the first six months of 2020 – a period when the COVID-19 coronavirus pandemic caused abnormally high mortality for the general population of the UK.

What was the impact of COVID on term assurance experience?

The high-level findings are, perhaps, unsurprising:

  • Overall mortality experience is significantly higher in 2020 than in 2019, with a pronounced spike in April 2020
  • In contrast, accelerated critical illness experience is lower in 2020 than in 2019, particularly for females.

Are the higher level of deaths comparable with the population?

For males, the excess deaths on term assurances are similar to the level we see in the population at similar ages. Interestingly, we see a higher impact on non-smokers than on smokers, but this is partly explained by the different comparisons being made, as we used smoker-specific tables to calculate expected deaths and the non-smoker tables have substantially lower mortality rates than the smoker tables.

For females, the excess deaths are lower than seen in the population. Again, the relative impact is higher for non-smokers. Indeed, the excess deaths actually appear to be negative for smokers; however:

  • Inspection of the experience by month does show the number of deaths to be higher in March and April 2020 relative to February, May and June; suggesting that the pandemic has had some impact.
  • The female smoker dataset is relatively small, comprising only 5% of the total term assurances dataset.

Why was critical illness experience lower in the first half of 2020?

Accelerated critical illness contracts pay out on the earlier of a diagnosis of a specified event – such as a diagnosis of malignant cancer or a heart attack – or death. The lower experience in the first half of 2020 is likely to reflect a displacement of claims, as routine medical services were under severe pressure from COVID-19 and services such as routine breast cancer screening were disrupted. If this proves correct, we might expect more claims to emerge subsequently, although this may not be in the second half of 2020 – or even in 2021 – as UK health services have remained under considerable strain.

Why is this analysis labelled “indicative”?

CMI results are always liable to change; in particular if we receive adjusted data from our data contributors however this analysis is labelled “indicative” for a number of reasons:

  1. We used data from only six insurers, instead of the usual eight, as the others were unable to supply the data in time.
  2. We only received information on claims in the first half of 2020; not the underlying portfolio. Our data validation was therefore less rigorous than usual and we needed to use estimates of the exposed to risk, based on previous years’ data.
  3. Many claims incurred in the first half of 2020 would not have been settled when the data was extracted to send to us, so we also had to estimate the outstanding claims.

Nonetheless, it provides important insights into the impact of COVID-19 on term assurance experience:

Future monitoring of UK term assurance experience

The CMI Assurances Committee will seek data to end-2020 by 30 September 2021 with a view to issuing its full report on 2020 experience early in 2022. This will be particularly relevant this year, to assess whether the indicative analysis of experience in 2020, described here, is robust and whether the pandemic continued to affect experience in the second half of 2020.

We will also consult with data contributors on collecting claims data to mid-2021, to enable us to assess the ongoing impact of the pandemic earlier than we would otherwise be able to.