Life insurance companies globally paid out $5.5 billion in claims related to COVID-19 throughout the first nine months of 2021 while paying out $3.5 billion for the entire year of 2020. Many in the insurance industry expected lower payouts due to the availability of vaccines. However, the death increase was primarily due to the Delta variant, which is twice as transmissible as the original strain. Life insurance claims increased the most in the United States, South Africa, and India due to the deadlier variants causing a rise in fatalities with unvaccinated groups of people.
Increase in the US Death Rate
According to Dutch insurer Aegon, life insurance claims were $111 million in the Americas during the third quarter, up to $31 million from the previous year, as two-thirds of their clients are in the United States. However, most premiums aren’t catching up to the increase in the US death rate due to the long-term nature of actuarial science. The death increase due to COVID-19 will likely continue to be higher than previous estimates from life insurance companies. These rising claims will only continue to impact the capital of these insurance providers.
Excess Deaths in 2020 in the United States
The initial stages of the pandemic caused a 12% death increase in the United States. However, this sudden increase in the US death rate did not make too much of an impact on the insurance industry due to their reserves. The impact also wasn’t as significant because many of the deaths were among older adults that didn’t have life insurance.
A Look Toward the Future
Actuarial science is always calculating risk factors and updating its models to determine the life expectancy of individuals. Working in the insurance actuary industry is incredibly challenging during a pandemic. However, actuarial science is all about considering numerous scenarios, whether it’s the rise of more transmissible variants or even new viruses.
Factoring in the potential of lockdowns is also essential, as some governments are much more restrictive than others. Risk modeling firms create up to 20,000 scenarios while updating their data to include vaccination, testing, hospitalization, and death rates. All of these different factors play a crucial role in helping life insurance companies develop policies for different groups of people.
When Will the Pandemic End?
The emergence of numerous variants makes it challenging to predict the end of the pandemic. Pfizer expects the pandemic to subside globally and eventually reach the endemic stage by 2024. The US death rate will likely continue to be higher, as it may be similar to how influenza causes so many deaths each year, even with vaccines. Life insurance companies expect claims to be higher for the next five to ten years. The increase in the US death rate will cause life insurance companies to set aside additional reserves to pay for these claims, and they may even need to increase premiums.
Unfortunately, those in the actuarial science industry believe that pandemics may become more frequent due to increased opportunities for transmission between animals and humans, urbanization, climate change due to deforestation, and increased global travel. Some even think a new coronavirus outbreak will happen within the next ten years, as it primarily depends on its transmissibility and our ability to fight against it. However, it most likely won’t cause as much of a devastating impact as COVID-19.
Increased Life Insurance Surrender Value
The cash surrender value of life insurance is how much money you will receive by canceling your annuity or insurance policy. The life insurance surrender value is for whole life insurance, as term policies don’t have any cash surrender value. Eventually, the cash surrender value of life insurance gets more significant over time with more payments. The increase in valuation is due to the number of payments and the interest that builds up over time, as this can be cashed in later or even used as collateral while applying for a loan.
The excess number of deaths in 2020 and 2021 made a significant impact on life insurance companies across the globe. The unpredictable nature of the pandemic also makes it challenging to forecast the future. Learning more about the life insurance surrender value of your policy and the importance of a life settlement is always vital in helping you make a decision that’s in your best interests.