The global life insurance industry was hit with reported claims due to COVID-19 of $5.5 billion in the first nine months of 2021 versus $3.5 billion for the whole of 2020, while the industry had expected lower payouts due to the rollout of vaccines.
The increase in claims was largely down to the emergence of the Delta variant, twice as transmissible, and more likely to cause hospitalization than the original coronavirus strain. Claims rose most in the United States, India and South Africa due to the more lethal variants and a rise in fatalities or illness among younger and unvaccinated groups.
Aegon , which does two-thirds of its business in the United States, said its claims in the Americas in the third quarter were $111 million, up from $31 million a year earlier. MetLife and Prudential Financial said life insurance claims rose. South Africa's Old Mutual used up more of its pandemic provisions to pay claims and reinsurer Munich Re raised its 2021 estimate of COVID-19 life and health claims to 600 million euros from 400 million.
The long-term nature of life insurance products – often lasting 20 years or more – means premiums are not yet capturing the risk that deaths or long-term illness from COVID-19 will likely remain higher than previously estimated. Competition in the industry is also keeping a lid on premiums.
Actuaries say rising claims will be eating into the capital which insurers set aside to ensure solvency. In the initial "shock" period of the pandemic in 2020, the insured U.S. population suffered 12% more deaths than average.
The impact for insurers in 2020 was more muted because deaths were mainly among older people who typically do not take out life insurance.
CRYSTAL BALL-GAZING - As the pandemic continues to surprise with the Omicron variant now becoming dominant, insurers, reinsurers and specialist risk modelling firms are looking to the future. Many are factoring in periodic lockdowns around the world and is also considering factoring in more uncertainty over whether governments will continue to impose restrictions to keep transmission rates low, and over individuals' willingness to obey them.
Risk modelling firm RMS said its updated COVID-19 projection model allowed for variants, such as Omicron, which show elements of vaccine escape, as well as for variants which might evade vaccines.
Reinsurer Swiss Re said its pandemic model takes more than 20,000 different scenarios into account. It has been updating its risk model regularly with the latest data on testing, vaccination, infection, hospitalization and fatality rates.
HOW LONG, WHAT'S NEXT? - With the emergence of the even more transmissible Omicron, COVID-19 vaccine manufacturer Pfizer has said it does not expect the pandemic to subside to an endemic state globally until 2024.
The pandemic, caused by a virus first identified in China in December 2019, could last five years. Excess deaths could continue as the virus becomes endemic, similar to influenza which causes many deaths each year despite vaccines. More deaths or long-term illnesses will require insurers to set aside more reserves to pay claims, and may force them to raise premiums.
Insurance risk experts also say the opportunities for transmission between humans and animals, high levels of global travel, increased urbanization and climate change impacts such as deforestation and disease-carrying mosquitoes mean pandemics could become more frequent.
A new coronavirus outbreak is indeed likely in the near future -- within the next 10 years, referring to the severe acute respiratory syndrome (SARS) and Middle East respiratory syndrome (MERS) outbreaks in the last two decades as early warnings.
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