COVID-19 (coronavirus) is wreaking havoc around the globe: non-essential businesses and schools have been shut down, travel has been restricted and most tragically, over 13,000 lives have been lost.  How will this affect life insurers in the long-term?

A recent Reuters article contained a worrisome quote:

Credit ratings firms AM Best and Fitch Ratings this week revised their outlooks for U.S. life insurers from stable to negative as the global economic meltdown rattles U.S. life insurers.

Group life, health and disability insurers will see a huge increase in claims – especially in short-term disability claims for employees off work due to illness. It’s currently unknown how high the mortality rate will climb as governments worldwide struggle to contain this pandemic, but mortality claims will certainly increase to some extent in specific areas.

A Moody’s report detailed in Advisor’s Edge was optimistic about the effect of mortality levels on insurers, although it’s important to note that the report was written over 20 days ago. “For global insurers, mortality levels would need to rise significantly to trigger a substantial rise in claims for life insurers, although there is still a lot of uncertainty as to the ultimate level of deaths.”

That same article notes that it may ultimately be heightened financial market volatility and lower bond yields that have the biggest effects on insurers’ profitability.

The Good News?

North American life insurers obviously can’t determine the outcome of a frightening global pandemic, but they were able to control their general level of readiness before the outbreak. A LIMRA and LOMA survey of financial services companies found that 91 percent have a pandemic stress scenario ready and 71 percent have assessed and quantified the potential impact on their key business in the event of higher mortality.

“Life insurers are in the business of assessing and mitigating risk—it is what they do day in and day out. This has enabled them to honor their commitments to their policyholders for hundreds of years and will allow them to respond to the challenges that the coronavirus could present,” according to LIMRA.

Any effective pandemic stress scenario must of course include a thorough review of a life insurer’s ability to facilitate seamless digital communication, offer self-service to agents and customers, and act in an agile fashion when necessary. It will be difficult for life insurers with older legacy systems to cope with the strain that coronavirus is going to put on the system.

This system overload, with the increased number of deaths set to make the claims processes and payouts longer, is occurring against the backdrop of less availability for key insurance teams, which highlights the importance of automatic claims processing and machine learning, among other new technologies.

In addition to an increased number of death and disability claims, standard point of insurance (POS) processes, such as changing coverage, will be necessary and carriers need to ensure that systems and teams are available. Insurers using legacy mainframe technology may face challenges with users who need to log in from remote locations, making it more difficult (or maybe impossible) to update policies. With most insurance personnel forced to work from home (WFH), it will be harder for agents and insureds to obtain up-to-date policy information – there will likely be a long wait time.

Managed services/IT outsourcing is another concern during the corona crisis. Do carriers have a disaster recovery and business continuity plan that features teams located around the globe, so that sites that aren’t as burdened by COVID-19 cases can keep the systems running seamlessly?

Life insurers who found themselves unprepared for coronavirus will have to conduct an effective review when this is over, to ensure that they are more prepared in case of a future global disruption. You can continue to check this blog channel for tips and best practices on how to cope with corona.

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