How Global Life Insurers are Seeking Balance
With Covid-19 showing no signs of slowing down this 2021, global life insurers are trying their best to circumvent the ongoing crisis as much as possible without sacrificing their reputations and profitability. Let’s see how this is playing out.
Companies like Aviva and Prudential Financial are implementing mandatory waiting periods to apply for coverage to Covid-19 patients. Insurers have had to implement such policies due to the massive amount of people requesting life insurance coverage and payouts due to the pandemic and more and more people are expected apply every day. Some insurance companies fear a tidal wave of claims from widows and widowers of people who had Covid-19. And Some companies are using is the 30-day waiting period for recovered patients; others have postponed applications from people diagnosed with Covid-19, including those who have experienced symptoms or lived with anyone who fell sick. Many victims suffer from long-term effects from Covid-19, even after recovery. For example, 10% are still unwell after 3 weeks of recovery and 5% continue feeling sick for months according to King’s College London. Many victims also suffer from mental-health crisis due to the loss of loved ones and isolation, which increases the chances of substance abuse. Justin Harper of Britain’s LV= said that the company was excluding mental-health issues from some policies that cover critical illness and income protection for up to 12 months.
Insurers are trying to find with ways to fulfill their contractual obligations while remaining profitable, and they have had mixed results. Some companies have said that the impact so far has been minimal, for instance British life insurer LV= has seen COVID-19 affect just 2% of applications and Aviva is still covering more than 9 in 10 customers, but they are taking precautionary steps of long-term risks. On the other hand, the Association of British Insurers (ABI) stated that they expect the UK insurance industry to pay out more than £900m for coronavirus-related claims, and £275m to travelers forced to cancel travel plans.
It is rather unclear whether this would translate to consumers having to pay higher premiums, but profits are surely going to take a hit. If the UK insurance market wants to remain competitive, this is inevitable, and the numbers don’t lie. The Lloyd's of London insurance market said it would pay out £2.4bn in pandemic-related claims and reported a half-year loss of £400m compared with a £2.3bn profit in the first half of 2019. While coronavirus-related payouts could be up to £5bn, Lloyd's reinsurance covers £2bn of that amount. It is no wonder insurance companies are struggling in trying to balance policy holder’s right to payouts, but also manage their risk.