A vaccination request too far?

Income protection specialist, FMI, a division of Bidvest Life, is the latest in a long list of insurers to admit that their lapse experience during lockdown and pandemic has been better than feared. “We expected [premium] affordability would become an issue and that high lapse rates would follow; but we have not experienced that,” said Leza Wells, Chief Product Actuary at the insurer. Wells was commenting during a virtual presentation titled ‘Covid-19: The real impact on life insurance ”. There is also substantial evidence that the country’s life policyholders have cottoned on to the value in their death, disability, dread disease and income protection cover and are doing whatever it takes to keep these covers in place.

Death claims on the rise

The number of death claims paid out across the life industry has surged since pandemic struck, and the country’s life insurers have not only paid out billions in claims, but have set aside billions more in reserves to meet claims in the remainder of 2021 and 2022. FMI has not been as affected by this claim category due to 62% of its in-force book being in the income protection space. According to Wells, the insurer has processed large volumes of short duration claims due to minor Covid-19 infections, with a few longer duration claims for more serious infections. There are, however, growing concerns that so-called ‘long Covid’ will have a greater impact on disability and income protection providers. 

Dr Peter Bond, Chief Medical Officer at FMI told the audience that ‘long Covid’ could affect as many as one in four individuals who caught the disease, adding that it was not uncommon for those who had mild cases of Covid-19 to report additional symptoms three to four weeks down the line. “Some of the effects of ‘long Covid’ are clearly debilitating and we expect this to have a big impact on future disability claims,” he said. The difficult facing life insurers becomes how to price their policies against the backdrop of evolving morbidity, mortality and vaccination statistics. And it now seems likely that South African insurers will face additional challenges due to the rather slow rollout of vaccines countrywide. 

New disease variants a major concern

“The most striking fact about vaccinations are that they prevent severe infections, hospitalisation and death,” said Dr Bond. “We need to get a significant proportion of the population vaccinated [to combat] community-acquired infections [and thereby reduce] the probability of variants developing”. From an insurer’s perspective, he observed that the low vaccine penetration in South Africa to date meant there was insufficient data to inform concrete decisions about changes to the underwriting conditions included on insurance applications as well as pricing. Wells agreed: “We need to see how the vaccine rollout goes over time and make a decision at that stage”. 

It has been interesting to note the different approach by insurers to the question of risk rating based on vaccination status. Some insurers have already gone on record that they will load premiums for an unvaccinated life insured in the same way they load smokers; but the debate is not as clear cut in the income protection space. According to Wells, those who are unvaccinated could pose higher risks for life cover and critical illness whereas income protection claims might occur at similar levels in the vaccinated versus unvaccinated pool. Most life insurers look certain to include questions about Covid-19 and vaccination status in their application forms but it remains unclear how this information will impact underwriting decisions. 

Except choppiness in both premium and underwriting

Wells had the following message for financial advisers: “We will never increase premiums to recoup past losses; but we do make changes based on our assumptions about our future claims experience”. She added that it was still being debated whether Covid-19 would result in higher morbidity and mortality rates within specific insurance pools. For example, given how many people succumbed to the disease, it may be possible that the insured population is, on average, healthier. There are also many second order effects such as ‘long Covid’ and the mental health impact of the disease that are not yet clear. Another possibility that cannot be ignored is that the world could face another pandemic event in the near future. 

The mental health aspect is of particular concern to insurers that write income protection cover. Dr Bond said that a recent study of 1200 South Africans confirmed the negative link between pandemic and mental health. “There was already a trend towards increasing mental health issues pre-pandemic and the significant stress triggered by the catastrophe will have a negative effect,” he said. Many people have been exposed to death among family or friends, job losses or significant income-led lifestyle changes over the past 19 months, all of which contribute to anxiety and depression. Of greater concern is that a small percentage of Covid-19 infections could lead to future neurological disorders. 

“We have been worried about the trend around mental illness for some time, particularly among the younger population,” conceded Wells. The good news is that FMI has only seen a slight increase in claims in this category to date, though the insurer did indicate that it would continue to closely monitor outcomes in this space. What should advisers be telling their clients regards cover, premium and underwriting under the pandemic context? Dr Bond said that it made sense to encourage clients to get vaccinated… We would love to hear readers’ views as to whether holistic financial and risk advice should extend into this murky territory! 

Advice-giving in a dynamic life cover environment

Financial advisers, most of whom are quite familiar with giving advice in a dynamic environment, can expect more changes in coming months. “The restrictions we put on products due to a more conservative approach to underwriting may be lifted soon,” said Wells. “We may, however, based on our continuous assessment of the market,  be required to introduce  additional pricing or product changes in the future”. She reminded the audience that it would take some time for the insurance industry to know the true impact of pandemic on both pricing and product design. 

The good news is that the life industry is well-capitalised to survive pandemic and any future shocks. “I want to assure advisers that insurers hold more than adequate solvency margins; we assess our balance sheets each year to withstand once in 100 and once in 200-year events, and can withstand pandemics and the volatility that they introduce,” concluded Wells. “FMI has a good solvency margin and a supportive shareholder in Bidvest to provide financial backing”. As for advisers, the suggestion was that the pandemic may present opportunities due to life insurance being an easier proposition to clients, especially since the industry’s claims performance through pandemic has reinforced the value in death, disability, dread disease and income protection cover. 

Writer’s thoughts:
The sense we got from the FMI presentation was that the dynamic and uncertain environment made it difficult for life insurers to revise their pricing and underwriting methodologies, despite changes in insurers’ morbidity and mortality experiences. Do you think there is enough trend data for insurers to act? And do you have any concerns about the changes to life underwriting requirements you have seen through pandemic? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.