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The future of life insurance in a post-Covid world

Durban - Covid-19 has had ‘a significant impact’ on the life insurance industry, with sharp increases in retrenchment claims, death and funeral claims, and disability income claims for people booked off work for a few weeks after contracting the illness.

“This has seen insurers becoming more conservative in issuing new death and critical illness policies until the industry has a clearer picture of the effects of the virus,” said Leza Wells, the Chief Product Actuary at FMI (a division of Bidvest Life).

Speaking at a webinar hosted by FMI last week, Wells said it was early to say what the effects Covid-19 would have on the cost of premiums, as actuaries were being guided by medical experts on the potential risks of the pandemic. However, it was important to note that any price increases would be based entirely on future risks, and not to cover any perceived shortfalls because of higher claims in recent months.

“We are still assessing the longer-term impact of the pandemic in a number of areas, so it’s premature to say what the effects will be on premiums at this stage. The success of the vaccine rollout, and whether we are able to reach herd immunity and stamp out the illness together, will guide any decisions around price increases,” said Wells.

FMI’s exposure to the virus has been limited, as its portfolio contains a higher proportion of income protection than the rest of the industry. (62% of its in-force book is disability income) and it has a relatively newer book with younger ages. The volume of disability income claims has been significantly higher than usual, but most of these are short-term claims. 

FMI’s consulting Chief Medical Officer, Dr Peter Bond, said one of the major areas of uncertainty for insurers was so-called ‘long Covid’, where medical research is still unclear on the long-term effects of the illness on people’s health. 

“The current data suggests that up to 25% of Covid sufferers will continue to have symptoms, or develop further symptoms four weeks after testing positive. This is naturally a concerning figure for insurers. We have less than two years’ experience of this complication of this pandemic, therefore it will be many more years before the full effect is known, which will then allow the insurance industry to adapt with a reasonable amount of confidence,” said Dr Bond.

Wells added, “Having Covid-19, or long Covid, will influence the future insurability of applicants and is the subject of ongoing research almost everywhere. Most insurers are now requesting a Covid recovery questionnaire, as well as a questionnaire by the treating doctor, for any new applications. Greater vaccination levels will allow us to return to normal less cautious underwriting for death and critical illness benefits.” 

However, there are no exclusions being applied to consumers who have to make repeated claims against their income protection policies as a result of Covid-19 or ‘long Covid’. 

Wells stressed the need for financial advisers to explain the selected waiting periods to their clients. This is one of the main areas of confusion regarding income protection policies and the main reasons for disappointment at claims stage when clients don’t qualify for a claim because their waiting period is too long. 

“Policyholders often think the waiting period refers to the period their policy must be in place before they can claim, as is the case with some medical aid schemes. Many clients with a 30-day waiting period will not be able to claim for Covid-related illnesses. We should ensure our clients choose a waiting period that suits their needs as this is one of the most important decisions they’ll make when taking out a policy,” said Wells.

Wells said the pandemic had highlighted the need for South African consumers to include income protection in their life insurance portfolios. “Income protection provides security when we need it the most. We talk a lot about ‘peace of mind’ when it comes to products like these, but the fact is that you need to pay all your other insurance, annuities, household expenses and school fees when you’re unable to earn an income,” she said.

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