COVID-19 and Life Insurance: The Pandemic Offers Opportunities

The COVID-19 pandemic has had a major impact on the US and insurance. It has impacted the US economy, with large increases in unemployment, and public health; currently in the US, more than 213,000 people have confirmed cases of the virus and nearly 4,800 people have died from it. Today, more than 80% of Americans are under some sort of directive to stay in their homes, and we still have a few weeks to go before the “apex” of the pandemic curve. Of course, we don’t know if there will be more waves after this one subsides or what the long-term impacts on the economy will be.

Forbes ran an article on March 30 titled Door May Be Closing on Life Insurance Buyers Amid Covid-19 that highlights the challenges life insurance is now facing. These are on top of existing challenges such as low interest rates, changing actuarial assumptions on legacy books of business, as well as legacy systems which inhibit the adoption of new digital processes that Millennials and Gen Z have come to expect.

This pandemic has further disrupted the life insurance business model. The article points out:

  • We don’t know the true mortality rate of COVID-19 because most people have either not been tested, are asymptomatic, or have the virus but can’t or won’t go to already overwhelmed hospitals in areas like New York. Hence, preliminary actuarial tables are inaccurate.
  • It will be difficult to obtain doctors’ records since many offices are closed and non-essential staff can’t come in due to lockdowns.
  • Life insurers can no longer use international travel as a risk factor since the whole world now has the virus.
  • Life insurers currently run a high risk that they will issue a policy to someone who already has the virus.
  • Life insurance applications and the underwriting process may not be updated to reflect the pandemic.
  • Life insurance that is dependent on a paramedic coming to your house to take blood and urine samples is not currently feasible.

Life insurance has always existed to fulfill the societal mission of helping families manage financial and mortality risk. These risks have only increased with the pandemic, increasing the importance of life insurance. Yet, this industry may struggle to fulfill its purpose. Why? I suggest the following:

  • The life insurance industry has gotten overconfident in its operating model, which focuses on wealthier consumers and ignores customer preferences for convenience.
  • Due to this operating model, the industry has struggled to adapt over the course of several lean and difficult years.
  • It is now experiencing repercussions due to this lack of flexibility.

I believe that the life insurance industry will adapt. It will redesign its products so they are digitally enabled, use third-party data and not fluids, are profitable in low-interest environments, and can be sold using whatever channel is best. Life insurers will do block analysis to sort out what to do with their legacy blocks of business, freeing capital reserves and people to focus on serving people in the post-pandemic “new normal.” Most importantly, they will be able to serve a much larger segment of the population to mitigate financial and mortality risk. There is hope for a better future!

Editor’s Note: Since the publication of this post, the World Health Organization has published an additional resource covering statistics for COVID-19 cases and deaths in the United States.

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