Tag Archives: COVID-19 life and health

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

Insurers Respond to COVID-19 (4/17/2020)

Auto insurance refunds

U.S. auto insurers will return more than $10 billion to their customers nationwide, according to an estimate released on April 11 by the Insurance Information Institute (Triple-I).

We’ve listed many of the companies that are offering refunds in a previous post.  This week, several other auto insurers have announced refunds or credits. This is not an exhaustive list, so be sure to check with your insurer to see if they are offering refunds or credits. All premium and rate adjustments are subject to regulatory approval.

Chubb‘s auto insurance clients will receive a credit reflecting a 35% premium reduction for the months of April and May, with additional discounts for subsequent months, as the situation warrants, upon renewal. Across Chubb’s portfolio, the average credit is expected to be $110 per vehicle.

COUNTRY Financial announced that every client with a personal auto insurance policy as of April 1, 2020 will receive a 15% refund for two months of auto premium in anticipation of a decrease in driving activity in April and May.

CSAA Insurance Group is giving a 20 percent refund for two months of auto premiums, March and April 2020.

ERIE has announced that lowering personal and commercial auto rates would be the best option for providing additional relief to customers. The company estimates the total rate reduction impact to be approximately $200 million throughout the 12 states and District of Columbia where ERIE operates.

Ohio Mutual Insurance Group is offering personal auto premium credits on more than 80,000 personal auto policies for an estimated total of $6 million. Ohio Mutual is voluntarily providing a 25% personal auto premium credit that applies to an 11-week period (March 16 – May 31, 2020) for all policies in-force on May 31. Credits will be automatically applied to customers’ first invoice after June 1. Those with a balance less than the credit will receive a refund by check.

The Hanover Insurance Group announced it has created The Hanover CARES Refund, through which the company will return 15% of April and May auto premiums to its eligible personal lines customers, providing financial relief during the coronavirus pandemic.

MAPFRE Insurance announced its Staying Home Refund program, which will return 15 percent of April and May premium to its voluntary personal auto policyholders in Massachusetts, totaling over $30 million. On average, most policyholders will receive a credit of approximately $40.00. A similar credit will be provided to the company’s personal auto policyholders in its other states of operation for the same time period.

Westfield announced a 15 percent policy credit to their eligible personal auto insurance customers for three months.

Supporting communities

Chubb has announced a support program designed to help ease the financial burden of the COVID-19 pandemic on its small business clients in the United States and provide direct support to healthcare workers and other front-line responders.

Chubb’s U.S. small business clients whose policies renew between April 1 and August 1, 2020 will receive an automatic 25% reduction in the sales and payroll exposures used to calculate their premium as well as a 15% reduction in premiums for their commercial auto insurance. In addition, Chubb will purchase $1 million in gift cards from small business clients around the country, which will be donated to healthcare workers and other first responders on the front lines of the pandemic in their communities.

Fundación MAPFRE, a global nonprofit foundation created by MAPFRE, announced it will donate $2.3 million to support urgent medical and community needs across Massachusetts, as the coronavirus continues to spread. The funding is part of a global $38 million aid package by the foundation for medical providers and communities around the world.

Hanover announced customer relief measures and a commitment to contribute $500,000 to nonprofits in local communities to address needs arising from the public health crisis.

State Farm has donated $1 million and partnered with Salesforce to provide one million masks and other protective equipment to healthcare workers in areas of urgent need identified by FEMA (Federal Emergency Management Agency). Since the start of COVID-19, State Farm has provided about $5 million in neighborhood relief across the country.

Swiss Re Group pledged to donate CHF 5 million to support the needs of people and communities affected by the COVID-19 pandemic around the world. Through its non-profit grant foundation, the Swiss Re Foundation, the funds will be distributed to organizations tackling the crisis, particularly in developing countries.

The Westfield Insurance Foundation is helping communities in Northeast Ohio and across the country by donating nearly $1.5 million dollars to nonprofit partners focused on family stability and disaster recovery. These dollars will help stabilize communities and help those who need economic support. 

Insurers Respond to COVID-19 Wrap-Up (4/10/2020)

Auto insurance refunds

Auto insurers are giving refunds to their customers as people are driving less due to coronavirus shut-downs. No action is required by customers to receive credit in most cases, but Sean Kevelighan, Triple-I CEO, urged customer to reach out to their insurers. “We always recommend the customer contact the insurer and explain their individual situations. Insurers are always happy to look at individual situations and work with the customer,” he said in a Weather Channel interview.

Here are the refunds some of the major auto insurers are offering:

Allstate customers will get “Shelter-In Place Paybacks,” adding up to $600 million over the next two months. “This is fair because less driving means fewer accidents,” Tom Wilson, the company’s chair, president and chief executive officer said in a statement.

American Family will return approximately $200 million to its auto insurance customers.

Farmers auto customers will receive a 25 percent reduction in their April premiums. “We are committed to helping customers during this unprecedented time,” said Jeff Dailey, the company’s CEO. “As we continue receiving updated information in the coming weeks, we’ll assess additional ways to take care of our customers.”

The Hanover Insurance Group will return 15% of April and May auto premiums to its eligible personal lines customers. The company also announced additional customer relief measures and a commitment to contribute $500,000 to nonprofits in local communities to address needs arising from the public health crisis.

The Hartford announced its COVID-19 Personal Auto Payback Plan, which will provide customers with a 15 percent refund on their April and May personal auto insurance premiums. Over the next two months, the company will distribute approximately $50 million to its customers.

Liberty Mutual will return approximately $250 million to customers. Personal auto insurance customers will receive a 15 percent refund on two months of their auto premium.

MetLife Auto & Home customers will receive a 15% credit for April and May based on their monthly premiums. The company is also extending coverage under all personal auto insurance programs at no additional charge while customers are making deliveries in response to the crisis, effective March 20, 2020, through May 1, 2020. Additionally, MetLife Auto & Home is offering identity protection coverage to its customers.

Nationwide is giving a one-time premium refund of $50 per policy for personal auto policies active as of March 31, 2020.

State Farm announced an up to a $2 billion dividend that will go to its auto insurance customers. Customers do not need to take any action to receive this dividend, which will appear as a credit on their auto policy. On average, State Farm Mutual auto customers can expect to receive a credit of about 25 percent of premium for the time period March 20 through May 31; exact percentages will vary by state.

The Travelers Companies is giving U.S. personal auto insurance customers a 15 percent credit on their April and May premiums. Travelers will continue to assess the program as more information comes to light about the impact of the COVID-19 crisis on the driving environment and auto claims.

USAA is set to return $520 million to its members for driving less during the COVID-19 shelter-in-place orders. The company said in a statement that the payment is a result of data showing members driving less during the “Stay Home, Work Safe” orders across the country.

IICF’s Children’s Relief Fund

The Insurance Industry Charitable Foundation (IICF) has launched a national industry-wide fundraising campaign to benefit vulnerable children. Funds raised through the COVID-19 Crisis: IICF Children’s Relief Fund will help support children at risk of food insecurity, educational disruption, family homelessness and other circumstances exacerbated by the crisis. To make a donation and support children in need, please contribute here.

The Allstate Foundation

The Allstate Foundation together with Allstate employees and agency force members, will donate resources across the nation to support communities during the COVID-19 crisis.

The Foundation is contributing $5 million to accelerate relief and recovery for domestic violence victims, youth in need, first responders and communities at large.

“It’s incredibly inspiring to see people finding ways to take care of each other,” said Elizabeth Brady, Allstate chief marketing, customer and communications officer and trustee of The Allstate Foundation. “For 68 years, The Allstate Foundation has delivered on Allstate’s promise to serve as the Good Hands – especially in a moment of need.”

The Nationwide Foundation

The Nationwide Foundation is making $5 million in contributions to local and national charities to support medical and economic response efforts.

“As communities experience impacts related to the pandemic, many non-profit organizations stand on the front lines, providing basic necessities, wellness services and support to those in need,” said Nationwide CEO and Nationwide Foundation Chairman Kirt Walker.  “Finances, staffs, programs and resources are being stretched as these non-profits not only serve their communities but feel the impact themselves. During these challenging times, we each have a responsibility, when we can, to lift those around us.”

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.

Health Insurers Waive COVID-19 Cost Sharing

UnitedHealthcare (UHC) this week became the latest major insurer to waive members’ cost sharing for COVID-19 treatments. The health insurer said it would waive the associated costs for members in its fully insured commercial, Medicare Advantage, and Medicaid plans.

UHC added that it’s working with interested self-funded employer plans to offer the same waivers.

Anthem announced similar steps, saying it would cover the cost-sharing for COVID-19 treatment through May 31 for its Medicare, Medicaid, individual market and fully insured employer plans. The insurer also said it was “strongly encouraging” its self-funded employers to adopt the waivers.

Anthem has also taken other steps similar to its peers in the industry, such as waiving the cost-sharing for testing and tele-health, and easing prescription limits.

Aetna, Cigna and Humana all previously announced they would waive members’ cost-sharing for COVID-19 treatment. These insurers also waived copayments and other cost-sharing for testing and telehealth visits.

Regional health plans are taking similar steps. Florida Blue announced Tuesday it would waive cost-sharing for treatment, as did Harvard Pilgrim Health Plan.

Keeping on Top
of Coronavirus
Information Overload

As quickly as the coronavirus is spreading, so is the amount of published information available to help insurers and their customers navigate this confusing environment. But separating information from misinformation and the truly useful from the merely “nice to know” can be a challenge.

As a service to our readers, Triple-I Blog is aggregating and sharing some of these resources. We’re gathering links and descriptions into blog posts like this one and have established a page on our website – COVID-19: Issues and Impacts – that categorizes the posts and makes them easier to find.


Brian Fannin, a research actuary at the Casualty Actuarial Society (CAS), published a paper called COVID-19: A Property/Casualty Perspective to “start the conversation about what happens next.”

The paper addresses, among others, the following questions:

  • To what extent, if any, was P/C risk underpriced?
  • Given the dramatic cessation of economic activity, what lines may have been overpriced? Was such a scenario foreseeable?
  • How will ratemaking models respond to the changes in coverage wording that will undoubtedly appear in the future?
  • How can actuaries assist in the development of viable coverages to meet new demand in the market?
  • Do actuaries have any advice about communication of risk and how best to mitigate it?

The National Council on Compensation Insurers (NCCI) has published an article COVID-19 and Workers Compensation: What You Need to Know to share its answers to questions NCCI has received regarding COVID-19 and the impact it may have on the workers comp industry.

As part of its effort to provide information on workers comp legislative activity, NCCI also monitors workers compensation-related bills in all jurisdictions and the federal government. You can follow such activity here.


On the non-P/C side, The New York Times published Coronavirus May Add Billions to the Nation’s Health Care Bill, which warns that health insurance premiums could rise as much as 40 percent next year as employers and insurers confront the additional costs associated with the pandemic.

The Times cites an analysis by Covered California that finds:

  • One-year projected costs in the national commercial market range from $34 billion to $251 billion for testing, treatment, and care specifically related to COVID-19;
  • Potential COVID-19 costs for 2020 could range from about 2 percent of premium to over 21 percent if the full first-year costs of the epidemic had been priced into the premium;
  • Health insurers are setting rates for 2021. If they must recoup 2020 costs, price for the same level of costs next year, and protect their solvency, 2021 premium increases to individuals and employers from COVID-19 alone could range from 4 percent to more than 40 percent.

Two recently published pieces provide historical comparisons of COVID-19 with the 1918 global flu pandemic:

The National Bureau of Economic Research (NBER) has published Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu, which looks at the long-term economic impact of the 1918 “Spanish Flu.” It finds that, while the decreased economic activity caused by the pandemic outlasted it by years, some societies took steps that softened the economic impact and lessened the death toll.

National Geographic has published How Some Cities Flattened the Curve During the 1918 Flu Pandemic, which shows how social distancing saved thousands of American lives during the last great pandemic. The piece includes some great data visualizations depicting how the flu played out from city to city.


Consulting firm PwC has published COVID-19: What Business Leaders Should Know that provides advice on six key areas businesses should be focusing on:

  • Crisis management and response
  • Workforce
  • Operations and supply chain
  • Finance and liquidity
  • Tax and trade
  • Strategy and brand

All of these areas are relevant to risk management and insurance.


Stay tuned – we’ll be continuing our reporting on and curation of COVID-19-specific information as long as the need for it continues.

COVID-19: Learn From History to Address
The Current Outbreak

By Dr. Steven Weisbart, CLU

Dr. Steven Weisbart

COVID-19, the new coronavirus, has killed more than three times as many people as the 2003 SARS epidemic.

The World Health Organization (WHO) reported that, as of 10 a.m. Central European Time (CET) on March 1, there were 87,137 confirmed COVID-19 cases and 2,977 of the infected people had died. From November 2002 through July 2003, according to the U.S. Centers for Disease Control and Prevention (CDC), 8,098 people worldwide became sick with severe acute respiratory syndrome (SARS) and 774 died.

More people are believed to have been infected with COVID-19 than official statistics show. This is because confirmed infections are based on positive tests for the virus, and some countries—including the United States—have been doing very little testing. Further, the estimated 2 percent death rate attributed to the disease is based on this unreliable infection count.

Instead of SARS, some are now comparing COVID-19 with the Ebola pandemic of 2014 to 2016.  Ebola is believed to have killed about 50 percent of those it infected, but that outbreak was contained before it reached the same number of infections as COVID-19.

So, is there a useful historic comparison to be made with COVID-19? I would argue that there is: the “Spanish Flu” of 1918-19.


Policemen in Seattle during the influenza epidemic. December 1918. National Archives.

There is no vaccine for COVID-19, and experts suggest  it could take a year or more to develop, test, manufacture, and distribute a vaccine. This suggests there are few medical strategies for dealing with the current outbreak. It’s as though we’re medically in the world of 100 years ago.

The 1918 flu virus had an estimated mortality rate of about 2 percent and was very infectious. It is estimated that as many as one-third of the entire world population was infected at some time, so even a 2 percent mortality rate caused millions of deaths.

This raises a scary thought about how the COVID-19 pandemic might play out: the Spanish Flu swept around the globe in three phases. The first  was in the Spring of 1918 and, although it infected widely, had a relatively low mortality rate. The second phase occurred in the Fall of 1918. This phase saw faster infection spread and was much more deadly. The third phase was in February and March of 1919 and was less infectious and less deadly than either of the two prior phases.

World War I – with large concentrations of soldiers in barracks and trenches and truck convoys moving across Europe – may have contributed to this infectious arc. But the virus killed more people than the war on every continent except Europe.

Insurance industry impact

What would a COVID-19 pandemic mean for insurers? The main impact would likely be on health insurers, since the number of people seeking hospitalization would likely spike claims far beyond anything their rate structures have anticipated. In 1918 hospitals were so overwhelmed that auditoriums, indoor sports arenas, and similar spaces were set up to house patients. Scarcity rates would apply; for example, the number of respirators available currently is far short of what would be needed, and prices for new supply would likely surge.

As I’ve written previously, for life insurers the effect of a severe pandemic would depend on which segments of the population are likely to die. In 1918, in addition to the very old, that virus struck unusually strongly at people in the prime working years, triggering benefits from both individual and group life insurance. The sudden impact of such unpredicted losses would affect all life insurers, particularly the weaker ones.

In the property and casualty sector, the line most directly affected is likely to be workers compensation, particularly for health care workers and others exposed to the virus as a result of their work—such as police, fire, and EMT. Another possible line affected is various liability lines, involving claims from people who became sick from manufacturing, dispensing, or receiving a vaccine or other treatments. In recent years, Congress passed laws blocking such liability claims, but it’s not clear that it will do so again today.

Beyond the direct effects to insurance, there are growing forecasts that the global economy, and especially particular sectors, could see dramatic cutbacks. Businesses and other organizations that involve people gathering in crowds are already seeing such effects, and insurance premiums that reflect these downturns are likely to follow. However, claims are also likely to turn down (e.g., fewer auto accidents), so the effect on those lines might actually be neutral or positive. 

Learn from history

Today people and goods move around the world with unprecedented speed. Urban environments and the transit systems that serve them are as packed with people as any military convoy or trench network.

If COVID-19 follows a similar track to that of the Spanish Flu, the current outbreak would turn out to have been a mild phase. If this scenario is correct, the first phase would taper off in a month or two, followed by several months in which the virus would appear to have ended its threat.

We should continue developing vaccines and other preventive/mitigating measures during this lull to better prepare for the more virulent phase that might manifest in the second half of 2020. Failure to do so would mean we’ve learned nothing from the worst global pandemic in the last 100 years.