Category Life Insurance

Understanding the impact of the COVID-19 pandemic on death, funeral and income disability claims

20 April 2021 Gontse Sekhitla, Head of Risk Product Development at Liberty Corporate

Towards the end of 2020, there was reason to believe that the worst of the pandemic experienced during the height of the first wave was behind us, with the roll out of vaccines around the world on the horizon.

Little did we know that the virus would mutate so quickly resulting in a worse than expected second wave of infections and resulting deaths in South Africa. It is now an accepted view that the COVID-19 virus is here to stay for the foreseeable future.

The South African Medical Research Council (SAMRC), which tracks the weekly deaths for the country, has shown that the death rate in the country has risen above the level that has been forecasted, based on historical population data. Since the start of the pandemic, it is estimated that excess deaths from natural causes have exceeded the 145 000 mark. These excess deaths include deaths from conditions that might have been diagnosed and treated had it not been for the pandemic, as well as those that are caused directly by COVID-19. The impact of COVID-19 infections and deaths on life insurance companies is immediately obvious with many more death and funeral claims submitted and paid than originally anticipated.

The first wave

Prior to the first wave of deaths in the months of July and August 2020, there was an initial reduction in the death rate below the forecasted level. This was largely due to the impact of the lockdown restricting the movement of people, and hence the spread of the virus. With the relaxation of some lockdown measures allowing increased movement of people, the death rate in the country rapidly increased. This pattern is consistent with our Liberty Corporate funeral benefit and death benefit claims paid data, which showed an increase of 73% and 60%1 respectively. Claim volumes also increased by about 71%2 for all mortality type claims. For the risk only business, claim volumes for funeral and death benefits increased by about 163% and 75% respectively.

September 2020 saw the death rate in the country reduce towards normal levels which signaled the end of the first wave. However, between the months of September and November 2020, the death rate remained at a slightly elevated level relative to the forecasted level. This indicated that although the first wave had passed, the pandemic was still negatively impacting the death rate in the country

The second wave

With the start of the festive season in December 2020 and the country being at alert level 1 of the lockdown, the infections, and hence the death rate, began to increase rapidly once again. The second wave, which lasted until February 2021, was far more devastating from a fatality perspective than the first wave. The number of deaths in the country during the second wave peaked at a higher level and much faster than during the first wave. This was largely due to the virus having mutated into stronger strains causing many more severe cases of COVID-19 infections. The new strains were also reportedly much easier to be transmitted from person to person. The second wave caused the Liberty funeral benefit and death benefit claims paid to increase by 107% and 93%3 respectively with the claim volumes for all mortality type claims almost doubling. For the risk only business, claim volumes for both funeral and death benefits increased by about 150%. The death rate in the country has now reduced towards normal levels, but it is still at an elevated level relative to the historical forecasted level.

The expected future

There have been recent reports of a third wave of infections and associated deaths in some European countries. It is widely expected that South Africa will also incur a third wave during the winter months of 2021. Given the current elevated level of death rates in the country and the expectation of a third (and possibly more waves) later in 2021, we expect an increase in death benefit and funeral benefit claims on our book relative to what was initially projected for the remainder of the year. In addition, the uncertainty around the pace of the vaccine roll out, the efficacy of the vaccines against the new strains of the virus and the impact of the COVID-19 illness on the future health of people is expected to further negatively impact mortality experience over the next few months and years. We expect this to result in the hardening of mortality prices in the market.

On the disability side, it is widely expected that the impact of the lockdowns on the business operations of companies resulting in less employment opportunities for employees may result in increased income disability claims. Liberty has not yet observed any significant increase in the volume and level of income disability benefit claims paid since the start of the pandemic. We do, however, expect this picture to change as the year progresses.

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