Key insights from the CMI Assurances Committee’s latest working paper on term assurances
The CMI Assurances Committee and wider CMI community wishes to dedicate Working Paper 182 to the memory of our colleague Adele Groyer, who tragically passed away shortly after its publication. Adele was a committed and engaged member of the committee, consistently offering her expertise and opinions through active participation and a willingness to volunteer. Her health battle didn’t dim her enthusiasm and she remained engaged throughout, driving forward our recent work and even drafting key sections of Working Paper 182. Adele will be deeply missed on the Assurances Committee and beyond.
The CMI Assurances Committee recently published Working Paper 182 – Considerations for term assurances post-pandemic. The COVID-19 pandemic has had a profound impact on many aspects of life, including the insurance industry and more specifically term assurance. In the paper the Assurances Committee sought to answer:
To answer these questions, the Assurances Committee analysed the term assurance experience of lives with policies issued on standard rates, based on data from 9 UK insurers covering the period 2017 to 2021. The paper compares the experience of the pandemic years (2020 to 2021) with the pre-pandemic period (2017 to 2019). It explores the impact of various risk factors using both traditional one-way analysis and generalised linear modelling.
The paper covers both mortality and accelerated critical illness (ACI) benefits. It looks to provide insights and considerations for insurers and actuaries involved in setting valuation bases for term assurance products in the post-pandemic period.
Some of the key findings and implications of the paper.
For mortality term assurance, we found that there was a significant increase in claims in 2020 and 2021 compared to the pre-pandemic period, especially for males and for people in more deprived socioeconomic groups. We also found that the ratio of death to terminal illness claims increased in 2020 and 2021, driven primarily by an increase in death claims, as opposed to a decrease in terminal illness claims. When looking at delays to claims settlement over the period 2017 to 2021 we saw that the combined experience across 2020 and 2021 exhibited a very similar development pattern to that seen in the combined period 2017 to 2019.
For ACI term assurance, we found that there were significant negative excess claims in 2020 and 2021 compared to the pre-pandemic period, across all genders and socioeconomic groups. In 2020 females have a larger negative excess than males, whilst in 2021, it is males that have the larger negative excess. For males there is suggestion that less deprived groups experienced a larger drop in claims compared with more deprived groups. Deaths account for a larger proportion of male ACI claims so the lighter experience in the higher deciles for males may reflect the socioeconomic gradient seen in mortality. Conversely the large negative excess seen in females at lower deciles may be caused by disruption to cancer screening programs having a bigger impact on female critical illness claims experience. The suggestion that the lower ACI claims may be due to reduced diagnosis and treatment of critical illnesses during the pandemic, would suggest there may be a catch-up effect in the future. However, when looking at delays to claims settlement there is no evidence of a subsequent catch-up compensating for the initial dip in settled claims, but we note that the claim run-off for critical illness claims is longer so this catch-up could still arise in subsequent years.
In the paper we highlight aspects that insurers may need to consider when setting their bases in light of the COVID-19 pandemic. We suggest that insurers may need to consider the temporary and permanent components of the excess mortality and how they interact with the base and trend assumptions for mortality rates. For ACI we suggest that insurers may need to continue to monitor the impact of the pandemic on the incidence of critical illnesses and their long-term consequences.
It is hoped these insights will serve as guideposts for actuaries, insurers, and industry professionals in navigating the new normal. Read the full CMI working paper: Working Paper 182 – Considerations for term assurances post-pandemic.
We are now turning our attention to our annual update on the experience of term assurances, covering the period to the end of 2022.
