Impact of Covid-19 on life insurance new business sales

A group of Life actuaries, working as part of the IFoA Covid-19 Action Taskforce, are releasing a series of blogs considering various ways that the pandemic has affected Life insurers. 

The third blog in this series explores the pandemic’s impact on future new business sales and considerations in underwriting, pricing and life insurance product demand.

Introduction

The Covid-19 pandemic has resulted in significant worldwide business interruption and operational changes. As the virus directly affects risks associated with the life and health of the population, insurers are currently considering whether any changes to the assumptions used for valuation of these risks will be required at this year end.

Impact on underwriting

• Underwriting is more important now than ever. Insurers were fast to react and have already modified underwriting requirements in light of the new virus.
• Insurance companies have been trying to digitise underwriting for a long time, but progress has been slow. Due to Covid-19, digitisation of the underwriting process is key to business continuity for insurers all over the world.
• There is an increase in online medical assessments due to restrictions affecting in-person assessments.
• Medical requirements may change further to align with potential changes in the pandemic impact, which requires continuous monitoring. Within underwriting, the potential impact on populations’ health due to reduced availability of doctors may need to be considered.

Impact on pricing assumptions

• There has been a large number of people on government furlough schemes and an increasing number of redundancies across all industries. With countries easing lockdown restrictions to restart their economies, insurers may see a loss of premium income from defaults, early lapses or reduced number of staff due to redundancies.
• Covid-19 has also changed people’s mind-sets regarding the importance of life insurance cover. There may be an increase in demand for life insurance.
• Economic conditions have been volatile with a reduction of interest rates globally. This will impact investment returns made by insurers and the respective economic assumptions that depend on it.

There is significant uncertainty with regard to the impact of Covid-19 on future mortality and morbidity rates. A clearer increase in mortality of older people and those with existing health issues has been observed worldwide. Some studies¹ from Wuhan have indicated that there is evidence of long-term ailments, such as liver damage, lung damage, etc., in people who have been infected by Covid-19. There may be a need to revise mortality and morbidity assumptions used by insurers for pricing of future business. Key consideration needs to be given to the underlying uncertainty of the impact of Covid-19 and whether any margins in pricing assumptions will be required in this respect. Availability of a vaccine in the near future may change this outlook.

Which products may be impacted?

A large variety of products are offered by life insurers. Covid-19 may potentially affect all products, but the level of the impact may vary by product category.

• Protection products: There may be an increase in demand for whole-of-life and term assurance products as people look for adequate protection for themselves and their families. However, due to falling incomes and reduced job security, people may be unable to afford higher premiums for higher covers. In addition, medical underwriting requirements are usually more stringent for higher benefits and may put people off in the short term, resulting in reduced demand for higher covers in the short term.  
• Life products with financial guarantees: Insurance products with guarantees are likely to be more attractive to customers but insurers could potentially be hesitant to offer such products due to the volatile economic environment.
• Pension products: If the pandemic continues, there may be an increase in withdrawals from long-term pension products if people experience liquidity shortage, resulting in a stress on pension products². Such a stress scenario may need to be considered when modelling future new business volumes.
• Investment products: Consumers may be less confident about stock markets due to the increases in volatility. A reduced demand for unit-linked insurance products might be observed in the short term.

Conclusion

All insurers are giving greater consideration to the assumption setting process and monitoring closely emerging data, which is expected to start showing the impacts of the pandemic. Over time changes in consumer behaviours, interest-rate changes, mortality and morbidity will emerge, and clearer trends will be identified. For now, underwriting remains the key tool for insurers’ risk management in the short term. Ensuring that all practical scenarios of Covid-19 impact are considered within stress and sensitivity testing should help with a more informed risk assessment when considering future new business.