Category Life Insurance

Insurers grapple with evolving pandemic risk

11 November 2021 Gareth Stokes

Insurers are having a tough time modelling pandemic risk as they grapple with countless variables that could influence eventual claims outcomes. “The novelty, unpredictability and severity of this pandemic, as well as its progression through multiple waves and variants, make it extremely difficult to accurately model how the pandemic will progress,” noted Discovery Group Risk, during a presentation on its 2021 claims experience. The sharp rise in claims proves that mortality and morbidity risks are significantly increased by Covid-19 infections, and flags certain demographic, health and lifestyle factors for contributing to the severity of the disease.

Big surge in death claims

Discovery Group Risk paid a total of 8840 claims in the 12 months to June 2021, totalling R2.1 billion. The total, which was 42% higher than the prior year, included R1.28 billion in life cover benefits, R579 million in income continuation benefits and R97 million in severe illness benefits. The value paid for death and funeral claims had more than doubled. “The 2021 financial year saw large increases in our group risk claims profile as well as large variances against expectations,” said Guy Chennells, Head of Products at Discovery Employee Benefits. “This experience reinforces the devastating impact the pandemic has had on mortality and morbidity”. 

The Discovery Employee Benefits Insights 2021 report offers valuable insights into the financial services giant’s mortality and morbidity experience under pandemic and lockdown. First up, the report reflected on the sharp increase in death claims due to natural causes, up by 82%, and unnatural causes, which were up by 42% year-on-year. A closer examination of causes of death offers a stark illustration of the pandemic’s impact on mortality. “Covid-19 was the main cause of death across males and females, with the second highest cause being respiratory diseases for females and heart and artery conditions for males,” said Chennells. 

Getting to grips with excess death

Discovery has paid out R1.3 billion for excess death claims since the start of the pandemic, including 490 Covid-19 life claims. “In September 2021, following the third wave of the pandemic, we paid the highest amount of claims in a single month since our inception; but the second wave was the most severe, with the highest number and total value of death claims related to Covid-19,” he said. The insurer found it necessary to offer some context on the excess death concept. According to the Insights 2021 report, excess deaths can be defined as deaths observed over and above what an insurer would usually expect in a given year. 

Discovery noted that while the pandemic obviously contributed to its excess death experience in 2020 and 2021, it was not possible to directly attribute all excess deaths to Covid-19 infections. Upon a closer analysis of claims data, supported with additional information from Discovery Health, it emerged that the death rate in members with no registered co-morbidities and no positive Covid-19 test had doubled from 0.08% in 2020 to 0.16% in 2021. Increased rates of motor vehicle accidents and suicides, particularly among male members; delayed cancer registrations and treatment; and delayed detection and management of other chronic conditions were held up alongside pandemic as contributors to excess deaths in the latest period. 

Motor accidents and suicide continue to exact a toll

“When we looked at the increase in suicide claims, we observed that suicides by month showed an upward trend with peaks roughly correlated to stricter lockdown periods,” said Chennells. “Males still account for most suicides, but females saw an increase 2021 over 2020”. The highest number of suicides over the two-year period occurred within the financial services industry, and the rate of suicide increased the most in the under-30 age group when comparing 2021 to the prior year. 

Discovery’s 2021 claims statistics are part of a growing body of evidence around the significant impact that Covid-19 is having on insurance risks, with a direct impact on mortality for individuals who contract the disease. “The future expected increased insurance risks resulting from this pandemic could manifest in increased death and disability group risk claims,” said Chennells. “It is therefore imperative that we prepare for this as best we can to ensure future sustainability and to maintain our commitment to future stable prices going forward”. The insurer hopes to mitigate the negative impact of pandemic by encouraging healthy behaviours among its members. 

Reflecting on future insurance risks

Commenting on future insurance risks due to past Covid-19 infections, Discovery sited international studies that show a higher risk ratio for adverse health events following infection. “Long-term implications of Covid-19 are emerging within those previously infected; our claims data shows that members hospitalised for the disease have a 3.5 times higher risk of developing a cardiac condition and a five times higher risk of developing diabetes than a member who did not contract Covid-19,” they write. Future insurance risks will also escalate due to lower healthcare utilisation through lockdown and the ongoing psychological impact of the pandemic, amongst others. 

“There is still so much uncertainty and so many factors at play in respect of how the future risk landscape unfolds,” concluded  Chennells. “We cannot predict the true impact of Covid-19 with great certainty; we can only prepare for it using the resources that we can control and that have proven their effectiveness, by, for example, encouraging a shift in behaviour to make people healthier”. 

Writer’s thoughts:
Employee benefits consultants and financial advisers plying their trade in the competitive group risk environment could be in for a torrid couple of years. All evidence points to tough negotiations with group risk insurers, whether writing new employee benefits business or renewing an existing scheme. Are you concerned that the pandemic experience could result in a type of over-compensation by group risk underwriters, by hiking premiums too far? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected]

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