Analysis of risks associated with outbreaks similar to COVID-19 concludes that they are insurable
Insurers should be comfortably able to account for and shoulder life and health claims arising from the COVID-19 pandemic, according to a new report.
In new research conducted with the University of St. Gallen, the Geneva Association said that the health and life risks for a pandemic resembling COVID-19 pose no fundamental insurability challenges.
It pointed out that excess mortality associated with diseases is a well-documented and researched topic among epidemiologists around the world. Aside from that, the report said life policyholders on average typically have significantly lower mortality rates compared to the general population, mainly due to medical underwriting in individual life insurance business.
“Also, due to higher than expected mortality rates, annuities may offer a natural hedge to the mortality shock caused by a pandemic,” the report said, noting that many life insurers focus on annuities rather than pure risk products like term life. The upshot, then, is a tendency for life expectancy increases to be viewed as more of a concern than sudden jumps in mortality.
The standard pandemic scenario used by insurers and regulators, according to the report, would assume an excess death ratio of 1.5 per 1,000 in the U.S., implying about 500,000 deaths – more than current official estimates of the potential death toll. In that case, the underwriting losses would amount to some US$15 billion, or 3% of pre-shock industry capital.
In the case of health insurers, it said a large-scale pandemic is expected to result in some saturation effects as limited healthcare resources are used to capacity. Should more people become chronically ill after virus exposure, it added, there could be negative consequences for health, long-term care, and occupational disability insurance.
But so far, it said the impact of the COVID-19 pandemic on private health insurance has been relatively mild. Health insurers in many countries have seen declines in medical care for non-COVID conditions and routine or elective procedures, which has more than offset the impact from COVID-19 claims.
The insurability challenges faced by insurers – including randomness and independence of losses, average loss per event, information asymmetries, and insurance premiums – tend to be manageable or insignificant from a mortality and health perspective, the report found.
However, it said both life and health insurers could face major insured losses in the event of a more severe pandemic, with one estimate projecting potential U.S. health insurance losses would exceed US$30 billion.
