Category Archives: Life Insurance

Can Life Insurers Cover All COVID-19 Death Claims?

Coronavirus

Will life  insurers be able to  pay all the death claims attributable to COVID-19 that come on top of claims for deaths not directly related to the pandemic?

Triple-I chief economist Dr. Steven Weisbart says they can.

How many additional death claims will COVID-19 cause?

As of this writing, officially about 90,000 Americans have died from COVID-19. In addition, there have been other deaths that seem excessive relative to “normal” statistics in prior years, suggesting the COVID-19 numbers are an undercount. It’s also possible that the “lockdown” imposed nearly nationally in late March, April, and in part of May, added to the total through suicide, drug overdoses, untreated conditions that would have been treated and managed in the absence of the pandemic, and violence.

So, let’s assume that, for the full year 2020, COVID-19 and related stresses cause 300,000 additional deaths. For simplicity, we’ll ignore any lockdown-related reductions in deaths – from, for example, fewer traffic accidents, air pollution, and other causes – that might be attributed to the pandemic.

Dr. Steven Weisbart Triple-I Chief Economist

“It’s unlikely that all the people who’ve died from COVID-19 had individual life insurance, since many were age 60 or over,” Weisbart says. “Even if we assume a third of these were insured – and, further, that two-thirds of younger people who died also had life insurance – and that all these claims were in addition to other causes of death, that would be 150,000 claims.”

In 2018, the latest year for which we have data, beneficiaries under 2.7 million individual life insurance policies received death benefits. So, although 150,000 additional death claims represent a large human toll, they would be only a 5.6 percent increase over the 2.7 million baseline.

“That would result in total death benefits being paid to 2.85 million beneficiaries,” Weisbart says. “This is roughly the same as occurred in 2015 and well below the peak of 3.5 million in 2012.”

In other words, even with our conservative assumptions, paying the additional deaths claims due to the pandemic is well within the industry’s financial and operational ability.

Are Life Insurers
Writing Less Business
Because of COVID-19?

COVID-19 has changed many aspects of our lives, so it isn’t surprising to see life insurance markets affected. But some stories create false impressions that should be corrected.

The story that some life insurers are writing fewer policies “because of COVID-19” has gained traction in both traditional and social media. While not wrong, like other stories involving insurance and COVID-19, it requires context to keep it from wandering off into urban legend territory.

“Life insurers’ ability to keep their promises to policyholders depends on numerous factors,” explains Triple-I chief economist Dr. Steven Weisbart.  “Among them are interest rates and how responsibly insurers underwrite policies and manage their investments.”

Dr. Steven Weisbart
Triple-I Chief Economist

Interest rates exceptionally low

What do interest rates have to do with life insurance? Many products (whole and universal life and term life for 20 years or more) calculate premiums in the expectation that, during the life of the policy, the insurer will earn enough interest from its investments, net of investment expenses and taxes, to help pay life insurance benefits. Many life insurance and annuity policies – especially those issued 10 or more years ago – guarantee to credit at least 3 percent per year.

“Efforts to stave off the recession spurred by attempts to ‘flatten the curve’ of infections and deaths caused by the virus have led to historically low interest rates,” Weisbart says.

Gross long-term rates on the investment-grade corporate bonds life insurers primarily invest in had been 4 percent for most of the past decade and plunged below 3 percent in August 2019. Since the onset of the pandemic, rates have fallen even further (see chart).

“So, life insurers – who planned to profit from the ‘spread’ between the interest they earned on their investments and the interest they credited on their policies – have lately struggled as this spread disappeared and then reversed,” Weisbart says.

Options are limited

“So, that’s it!” I hear some of you say. “It’s all about rich insurance companies protecting their profits!”

Businesses must make a profit to stay alive, and U.S. insurers – one of the most heavily regulated and closely scrutinized businesses on the planet – have the additional requirement to maintain substantial policyholder surplus to ensure claims can be paid. Life insurers, in particular, are required to maintain a special account – the interest maintenance reserve (IMR).

“The IMR is drawn down when net interest earnings are too low to support claims – as is the case now,” Weisbart says. “If it’s exhausted, insurers can draw down surplus, but they can’t draw too much because they’re required to keep at least a minimum surplus to protect against adverse outcomes in all other lines of business.”

If their investments aren’t performing as well as expected, insurers have two options: write less business or charge more for the business they write.

Exercising a combination of these options is what life insurers are doing now.

“When interest rates eventually rise, the profitable spread will return,” Weisbart says, and competition among insurers will likely lead to more liberal underwriting and lower premiums. “But we can’t predict with confidence when that might happen.”

Until then, life insurers are tightening their criteria for issuing new policies and, in some cases, raising premiums so they can deliver what they’ve promised their existing policyholders.

Are Life Insurers Denying Benefits for Deaths
Related to COVID-19?

Social media has been abuzz with posts suggesting life insurance claims related to COVID-19 are being summarily denied. Much of the anxiety seems to stem from a news story titled: Would my life insurance policy cover COVID-19 related death?  

An anchor for the news organization that aired the piece shared it on Twitter below the tweet: 

Will your life insurance cover you if you die from #COVID19? 

Well, it depends. 

The tweet is accurate enough. As it would be if the reference to COVID-19 was deleted. Or if the tweet referred to another form of insurance. 

Claims sometimes are denied.  

According to the American Council of Life Insurers 2019  Fact Book, life insurance death benefits paid in 2018 totaled nearly $80 billion, up from $77 billion in 2017. Steadily rising annual payouts like the ones shown in the chart below don’t suggest an industry that spends a great deal of time slithering through loopholes to avoid paying legitimate claims.  

“Life insurance claims are rarely denied,” says Triple-I chief economist Dr. Steven Weisbart. “When they are, it’s typically because the policies had lapsed due to non-payment of premium or the policyholders had provided inaccurate or misleading information at the time of application or renewal.” 

Even in the event of a material misstatement on a life insurance application – say, the applicant lied about a significant health issue – the insurer has to discover the misrepresentation within a defined “contestability period.”  

If the policyholder dies within that period, which typically lasts two years from the date of purchase, Dr. Weisbart says, the insurer can investigate whether the information the applicant provided was accurate. If the policyholder dies after the contestability period ends, the insurer is out of luck.    



Insurers don’t make money by rejecting claims. They make money by underwriting accurately, investing wisely, and making customers happy enough to recommend them to friends and family. 


Compare the chart above, showing the billions of dollars in death benefits paid, with the chart below showing that contested claims are only a tiny fraction of those paid – and bear in mind that many, if not most, of those contested claims ultimately ended up being paid.

Regulated and closely watched 

Insurance is one of the most heavily regulated and closely scrutinized industries in the world, and claims payment is at the heart of the insurance customer experience. Insurers don’t make money by rejecting claims. They make money by underwriting accurately, investing wisely, and – as with any other business – making customers happy enough to recommend them to their friends and family. 

Unfortunately, many people – including much of the media – simply don’t understand how insurance works: how premiums are set, what types of risks are excluded (or that exclusions are even “a thing”), and how reserves and policyholder surplus work.  

This is demonstrated in some of the contentious discussions around COVID-19-related business interruption claims. In the case of business interruption, most of the denied claims have been against policies that specifically exclude losses related to infectious disease. Moves are now afoot to retroactively rewrite those contracts – to the immediate detriment of the insurance industry and longer-term danger to the people and businesses that depend on insurance – as well as anyone who ever enters into any contract ever again.  

I know of no life insurance policy that specifically excludes death from infectious disease. It’s possible some “dread disease” policies that cover specific conditions, such as cancer, might not be paid if COVID-19 – rather than the disease insured against – is deemed to be the cause of death. Or that a life claim might be denied if premium payments were missed or a policyholder smoked or engaged in some other activity associated with high coronavirus mortality that they’d denied on their application less than two years earlier.  

So, yes: Some claims may be denied. But such denials are rare and – social media agitation notwithstanding – don’t imply nefarious behavior on the part of insurers.  

Financial First Responders 

As the economic impact of the pandemic makes it difficult for consumers to keep current on their bills, states have begun to mandate that life insurers keep policies in force, even if policyholders miss payments. At the same time, insurers – facing big financial hits across the many categories of risk they cover (including recent tornadoes and the upcoming hurricane and wildfire seasons) – are doing a lot to support their customers and the communities in which they do business during this crisis. 

Insurers are financial first responders when it comes to just about any loss-creating event the average person might imagine. Media organizations would do their consumers a greater service by clarifying that role and helping them understand how best to shop for the insurance they need than by dropping scary, misleading tweets on an already anxiety-filled public.

Coronavirus wrap-up: life and health insurance (4/22/2020)

Health insurance

Buying health insurance? What to know during the coronavirus pandemic

Care providers may need $100B more as industry faces further COVID-19 losses

What to Do if You Can’t Pay for Insurance Due to Coronavirus

Health Insurance Rates Could Be Weirdly Stable: Actuaries

How Will COVID-19 Affect the Health Care Economy?

Life insurance

Certain US life insurers suspend senior applications

Consumers Looking To Buy Life Insurance

More States Mandating Forgiveness On Life Insurance Premiums

Implications of coronavirus for North American life and annuities writers

What an Annuity Giant Is Telling Investors About COVID-19 Risk

Coronavirus wrap-up
Life/Health
(4/8/2020)

A.M. Best Holds Stable Outlook on U.S. Health Industry Amid COVID-19 Pandemic Crisis

Insurance rating agency A.M. Best said it is maintaining its stable market segment outlook on the U.S. health insurance industry, despite the impact of the COVID-19 virus outbreak. It cited:

  • A trend of strong earnings;
  • Strengthened risk-adjusted capitalization;
  • Lower-than-estimated utilization and medical cost trends; and
  • The cancellation or postponement of visits for routine care and elective procedures.

U.S. life insurers’ growing commercial mortgage portfolios may face virus pressure

U.S. life insurers continued in 2019 to increase their holdings of commercial mortgage loans, an asset class that industry participants say faces unique challenges during the coronavirus pandemic, S&P Global reports. The long-term nature of commercial mortgages makes them a good asset match for the long-duration liabilities life insurers carry. However, commercial mortgage loans could be under stress as the pandemic-sparked economic slowdown continues.

Calls for Medicaid expansion renewed as COVID-19 outbreak strains health care system

More than 50 Texas health policy and industry groups are urging Gov. Greg Abbott to expand the state’s Medicaid program to cover more than 1 million people as a way to slow the spread of the coronavirus and the illness it causes, COVID-19.

Coronavirus Reset: How to Get Health Insurance Now

Millions of people have lost jobs — and often the health coverage that came with those jobs. More still have had their work hours reduced or have received drastic pay cuts, so monthly premiums that may have been manageable before are now out of reach.

Estimated Cost of Treating the Uninsured Hospitalized with COVID-19

A great deal of uncertainty surrounds how the COVID-19 epidemic will evolve, including how many people will become infected and how many will become severely ill and require hospitalization. The Kaiser Family Foundation provides a range of cost estimates for the Trump administration’s proposal to reimburse hospitals for COVID-19 treatments for uninsured patients, based on results from recent studies and models.

Ask a life insurance agent

photo courtesy of Robert Stevenson

 

The Triple-I blog received the terrific opportunity to ask State Farm life insurance agent, Robert Stevenson, a few questions about getting the most out of the often-misunderstood financial product.

What is your educational background and what was the path that led you to become a life insurance agent?

Robert Stevenson: I grew up in Savannah, Georgia and attended Hampton University in Virginia. I was working on my master’s degree when I accepted an opportunity with State Farm Insurance Corporate Headquarters. My job was to help the company expand its presence on the east and west coast. During that time, I learned about becoming a State Farm agent, and fell in love with it. I worked hard, and in December of 2000, opened my agency in New York, New York. As a State Farm agent, I’m a small business owner – I get to know people on a personal level. Helping them manage the risks of everyday life, recover from the unexpected, and realize their dreams is truly rewarding. I’ve never looked back.

What advice would you give students that are considering becoming life insurance agents?

RS: You have to listen and you have to care. This is more than a job. It’s helping people protect what’s most important to them. People don’t always want to talk about life insurance. It’s uncomfortable. But, let’s be honest. Someday you will die. No one in the history of the world has ever cheated it. That’s why, you have to make sure people are protected, and that they understand the bigger picture. You’re taking care of families and protecting the lifestyle they spent years building. While nothing can bring someone back, a family’s dreams can still be achieved because their loved one had life insurance. It’s truly a gift of love. You need to help people understand this.

What is the most common misconception that your clients have about life insurance?

RS: That they don’t need it. That they have enough. Often, I’ll hear the response, “I have it through my employer.” But, there’s a chance that benefit can be taken away. Also, if you have life insurance though an employer, and you get a new job, you might not receive the same coverage in your new position. Or, if you retire, it’s likely you won’t receive the same amount you once had. It’s wise to be proactive and read the fine print. Health and age also play a role in life insurance. I often hear, “I’ll wait till I’m married or have kids to get it.” Problem is, as we get older, our health tends to decline. Therefore, if you wait to get life insurance, you’ll likely end up paying more for it.

How do you help a client determine how much insurance they need and what type of policy is best for them?

RS: I start by forecasting. I ask customers questions like, “Where do you want to be in five, 10, 20, 30 years? Do you want to be married? Own a business? Have children? Travel? What’s your dream?” It’s vital for people to understand the importance of investing so they can generate more income as the years go by. Life insurance is not an afterthought. It’s the foundation of an investment strategy. You can’t invest in mutual funds, or stocks, or your child’s college, or buy rental properties, etc., if you don’t have the income. If something happens to you – your family is able to replace your income and still achieve their dreams.

It’s also important to help customers understand the difference between term life and whole life. Term does exactly what it sounds like – it covers you for a period of time. If you die within that period of time, your family is covered. But, think about this. Let’s say you’re 35, and you want to buy 20 or 30 years of term life insurance. Do you think you’ll be living 20 or 30 years from now? When I ask people that question, most answer, “Yes.” That’s when I remind them, when 20/30 years goes by and they’re still living, they won’t receive this payout.  Whole life covers you for the entire length of your life. No matter what. It guarantees your family will get paid. It’s more expensive up front, but you’re guaranteeing a payment – it builds value you can cash out.

How does one make sure that their life insurance policy does not get lost and that their beneficiaries get paid as quickly as possible after their death?

RS: When we sell a life policy, we tell our clients, “Make sure your loved ones are aware of the policy and each of you know where important documents are located.” For example, the safe in your house. Also, as life changes, periodic updates with your State Farm agent or financial planner are a smart idea to ensure everyone is on the same page.

What professional achievement are you most proud of?

RS: That’s a tough one. I’d say, when I got my securities license. It allows you to sell packaged investment products like mutual funds and variable annuities. Getting this takes a lot of work and involves rigorous testing. I had one opportunity to pass it. That was a lot of pressure. But it was worth it. Getting my securities license gave me the opportunity to open my office and help people.

What do you like to do in your spare time?

RS: I enjoy reading and golf. Having activities like these lets me to unwind. But more so, I love spending time with my family. I have a son and a daughter who keep me busy. Family time is important. All things in equal parts. That’s what keeps life joyful.

Sleep and insurance

I came across this from Swiss Re around 2 a.m., which helps explain why it caught my (sleepy) eye:

Consider these two facts: Firstly, two out of three man-made losses worldwide are due to human failure. Based on Swiss Re’s sigma research, this would mean that people trigger a loss volume of around USD 3 billion per year.

Secondly, life insurance generated premiums of USD 2.6 trillion in 2017. These two facts are linked because tired people make more errors and insomniacs are at a greater risk of dying earlier than would otherwise be the case.

That’s right – the insurance angle on sleep.

The lack of sleep is associated with increased rates of heart attacks, strokes, obesity and other diseases. Sleeping less can also contribute to the development of Alzheimer’s. And recent research found that chronic sleep restriction increases risk seeking behaviour.

If these trends change the loss patterns in property and casualty or mortality rates, this could have a multi-billion dollar impact on the insurance industry in the long run.

The lack of sleep has caused some high profile accidents, the most notable in my world being a New Jersey Transit train that  in 2016 crashed into Hoboken terminal because the engineer, suffering from sleep apnea, zoned out at a crucial moment. One woman died, dozens were injured.

Swiss Re posits that society, ever accelerating, robs us of ever more sleep. The less we sleep, the woozier we become. And the more errors we make.  (Our bodies wear out faster too, becoming susceptible to the maladies Swiss Re mentions above.)

A good dose of resilience helps here. New York area railroads are installing (by federal mandate) positive train control systems, which automatically stop trains in any sort of peril, including that of a tired engineer. The illustration above describes how the system works.

As for my own struggles – an e-book of white text on black background, and perhaps a cup of chamomile tea.

Older People Projected to Outnumber Children for First Time in U.S. History: The impact on life insurance and retirement

The Insurance Information Institute’s Chief Economist, Dr. Steven Weisbart offers his insight on the impact on life insurance and retirement of the demographic trends highlighted in a recently released Census report.

The report projects that by 2030, the year when all baby boomers will be older than 65, one in every five Americans will be of retirement age. By 2035 older adults will outnumber children for the first time in U.S. history.

On life insurance:  The population age 25-44 (the main life-insurance-buying group) was 85.15 million strong in 2016. The Census Bureau projects it to grow to 88.8 million in 2020, to 94.4 million in 2030, and 95.1 million in 2040.  The number of children under age 18 was 73.6 million in 2016. The census bureau projects it to grow to 73.9 million in 2020, to 75.4 million in 2030, and 76.8 million in 2040.  Thus the size of the “breadwinner with children” segment of the population is projected to grow very slowly in the next two decades, meaning that the market for life insurance will grow very very slowly.

On retirement: the population age 85+ (the main long-lived retirement group) was 6.4 million strong in 2016. The Census Bureau projects it to grow to 6.7 million in 2020, to 9.1 million in 2030, and 14.4 million in 2040. You can see the explosive growth in these projections. We can only hope that people age 63 today, many of whom will live to 85 in 2040, have saved enough to draw sufficient retirement income to pay all of their bills then. Otherwise, this could develop into a massive social problem.

 

NAIC’s life insurance policy locator finds $92.5 million in lost life insurance policies in its first year

The National Association of Insurance Commissioners (NAIC) announced on Monday that its Life Insurance Policy Locator has matched 8,210 beneficiaries with lost or misplaced life insurance policies or annuities – totaling $92.5 million returned to consumers – since the launch of the consumer tool last November. More than 40,000 consumers have conducted searches since the policy locator was launched.

“State insurance regulators identified the scattershot, intensely manual process of helping consumers search for lost life insurance policies,” said Ted Nickel, NAIC President and Wisconsin Insurance Commissioner. “.. we leveraged innovation and technology to develop a bespoke solution providing an easy way for consumers to access nearly all life insurers and search for lost life insurance policies.”

Selfies And Life Insurance

Today’s selfie may already be posted on Instagram, but consider this: one day it could be part of your application for life insurance.

NerdWallet reports that several life insurers are testing technology that uses facial analytics and other data to estimate life expectancy.

The tech company in focus, Lapetus Solutions, says its product Chronos, would enable a customer to buy life insurance online in as little as 10 minutes without taking a life insurance medical exam.

NerdWallet explains that state regulatory approval would be required for an insurer to be able to use Chronos in the underwriting process. Once approved, here’s how it would work:

“You’d upload a selfie to the insurer online and answer health and other questions. The facial analytics technology would scan hundreds of points on your face and extract certain information, including your body mass index, physiological age (in layman’s terms, how old you look) and whether you’re aging faster or slower than your actual age.”

The facial analytics angle is just one example of how life insurers are exploring the use of data, statistical models, artificial intelligence and other innovative techniques in their business.

Time and testing will tell which new approaches prove effective, says Robert Kerzner, president and CEO of LIMRA: “This one may or may not meet the vetting process to make carriers comfortable.”

What do you think?

Check out I.I.I. facts and statistics on life insurance.