Long-term Impacts of COVID-19 on Insurance

The COVID-19 pandemic certainly affected almost all facets of life, including the way we live, work, socialize and manage our finances. Some of the impacts appear to be enduring, reflecting a new normal in the post-pandemic world.

Speaking to my own experience, grocery shopping has always ranked low on my list of chores. However, the pandemic introduced me to a game-changing service: having groceries delivered directly to my doorstep. This newfound convenience has become an essential part of my life. This is something that represents a secondary and ongoing impact of COVID-19.

Over the past few weeks, I’ve had the privilege of engaging in discussions with fellow actuaries who work in different insurance sectors, including health, life, disability and group products, pension, and property and casualty (P&C). We delved into observations surrounding some of the secondary impacts of COVID-19 on our respective sectors. Let’s explore the insights.

Brian Mackintosh, FSA, MAAA, Health Actuary and Chief Actuary at Blue Cross & Blue Shield of Rhode Island

As we all know, COVID-19 had significant impacts on the health insurance market during the height of the pandemic. A lot of those disruptions are behind us now, but in terms of lingering and long-term effects, here are some of my thoughts.

Health Care Supply and Demand

Historically, there has been a steady and consistent supply of health care providers to accommodate the generally increasing demand for health care in the United States. However, the pandemic disrupted both of those long-term trends in 2020, and we still see impacts today in 2024.

The pandemic caused a significant disruption in the supply and demand dynamics of the health care market. In the spring of 2020, hospitals were overwhelmed with increasing cases of COVID-19 and made the decision to defer all elective procedures. It is important to note that “elective” procedures are not necessarily cosmetic or optional; rather, the term refers to procedures that were not deemed to be emergencies that required immediate attention. Some studies suggest that up to 80% of surgeries fall into this category. The result of these deferrals was a scenario of zero supply but normal demand.

Subsequently, insurers and providers struggled to estimate when, or if, these deferred procedures would be rescheduled. Even though many of the originally deferred procedures have been rescheduled by now, there are lingering effects attributable to the pandemic. For example, we are observing higher rates of certain cancers being diagnosed in later stages than was typical. As reports suggest, this could be attributed to canceled screening appointments during the pandemic, which might have otherwise caught these conditions at earlier, more treatable stages.

The Association of American Medical Colleges (AAMC) projects an impending physician shortage in the United States, attributed to the aging physician workforce and an older and sicker U.S. patient population. This was exacerbated by an alarming number of U.S. physicians and health care workers leaving the workforce since the onset of the pandemic, as reports show.

Rethink What ‘Catastrophic’ Means

Like all insurers, health insurance companies traditionally set aside reserves to pay claims. Companies build up reserves over time to establish strong risk-based capital levels to withstand financial shocks. Pandemic risk historically has been cited as an example of such financial shocks, where robust reserves would be necessary to withstand the high costs and volume of claims associated with a pandemic.

However, the COVID-19 pandemic proved to be markedly different from what was anticipated. In the spring of 2020, particularly in March and April, most elective procedures came to a halt. While pharmacy claim utilization continued with relatively little impact, medical claims declined dramatically. Surprisingly, even the costs associated with COVID-19 cases did not offset the significant drop in elective procedures. Dental services, to one extreme, saw nearly no utilization during that time.

Health insurance companies often scenario-test catastrophic situations for enterprise risk management (ERM) or other purposes. The COVID-19 pandemic provided a real-world example of a catastrophic event that, at least with regard to near-term health care costs, proved to be much different than expected. It’s important to recognize that not all catastrophic scenarios will have equal impacts across all dimensions, including financial, societal, health and provider disruptions, and operational impacts.

Cancer Rates and Screenings

The shutdown of many health care services in 2020, particularly during the initial phases of the COVID-19 pandemic, significantly affected cancer screenings and preventive visits. Routine screenings were often canceled or postponed to prioritize resources for COVID-19 treatment and reduce the risk of virus transmission. Many individuals who otherwise would have been diagnosed with cancer during that time did not receive timely screenings or follow-up care. As a result, there was a notable decline in new cancer diagnoses in 2020. Some studies have shown that early-stage cancer diagnoses decreased by nearly 20% in the first year of the COVID-19 pandemic.

One significant consequence of reduced screenings in 2020 is that new cancer diagnoses in 2021 and beyond were often at a later stage. This delay in diagnosis led to worse outcomes for patients and higher costs associated with more complex treatments. Studies have shown that late-stage cancer diagnoses increased following the disruptions of the pandemic, underscoring the importance of timely screenings and preventive care in detecting cancer early.

Vaccine Uptake in General

A trend of stagnated or declined vaccination rates predated the COVID-19 pandemic. The onset of the pandemic seemed to have accelerated the trend of lower vaccine uptake in the United States. Especially during 2020 and 2021, the COVID-19 pandemic disrupted routine health care delivery and caused a decline in the amount of recommended vaccinations administered across the United States (not just COVID-19 vaccines, but all vaccines).

This could have major population health impacts in the future as “herd immunity” wears off, and we could see more outbreaks of otherwise vaccine-preventable diseases.

Rob Frasca, FSA, CERA, Life Actuary and Managing Director at Ernst & Young LLP

Disruption in Mortality Experience

COVID-19 significantly affected mortality patterns worldwide. The extent of this impact varied depending on factors such as geographic location, population demographics, health care infrastructure and public health measures.

Now that we are a few years past the peak of the pandemic, a key question actuaries face is whether and how to incorporate data impacted by COVID-19 into experience analysis. I have seen companies not use experience from 2020 and 2021 at all, some use it without adjustment, and others make adjustments, such as eliminating COVID-19 deaths from total mortality. One of the key considerations is to assess the quality and reliability of the data. For some products, termination data may not reliably differentiate between deaths and lapse. For those who collect cause-of-death information, COVID-19 death reporting can be complicated by various factors, including comorbidities.

Ancillary Impacts

The ancillary impacts of rising interest rates, influenced by various factors, including pandemic-related government interventions and economic policies, have had significant implications for the life insurance industry. The Coronavirus Aid, Relief and Economic Security (CARES) Act pushed $2 trillion of stimulus into the economy in response to the effects of COVID-19. It has been reported that increased government spending and relief measures led to inflationary pressures, which in turn led the Federal Reserve to raise interest rates.

We’ve seen notable changes in the market for insurance products as a result. Fixed annuities offer guaranteed interest rates, which have become more attractive to policyholders as market interest rates have risen. Policyholders holding existing fixed annuities at lower interest rates may choose to surrender their contracts and purchase new ones offering higher rates, leading to higher lapses. I am seeing some insurers become more aggressive in offering competitive crediting rates on fixed annuities and, to a lesser extent, on universal life insurance policies to attract and retain policyholders.

I also am seeing increased merger and acquisition (M&A) activities, in part driven by the rising interest rate environment. Interest rates impact the valuation of insurance companies’ liabilities, particularly for long-duration products like annuities and life insurance. Higher interest rates translate into higher asset yields, which, in turn, reduce the present value of future liability cash flows, making certain blocks of business more attractive targets for acquisition.

Jim Filmore, FSA, MAAA, VP and Actuary at Munich Re, Responsible for Group and Living Benefits Pricing

Group Life

The direct impact of COVID-19 on mortality products—like individual life and group life—should be well known at this point. The major relevant differences between the two products are the age distribution of the business and the degree of medical underwriting at the time of issue. The impact of the COVID-19 pandemic varied by age, which is why we track our experience by product, including segmentation by age.

In addition to the direct impact, there were secondary impacts from the COVID-19 pandemic. For example, those in their 20s, 30s and 40s had a material increase in non-COVID-19 causes of death, mostly from external causes, including motor vehicle accidents, drug overdoses and homicides. A number of those trends had been occurring prior to the pandemic, but the pandemic exacerbated them. We expect to continue to see group life claims with COVID-19 as the primary cause of death. However, those elevated deaths have come down dramatically from their pandemic highs, and at some point, the overall mortality will revert to pre-pandemic levels. In the meantime, it is the non-COVID-19 excess deaths that we are carefully monitoring for our mortality products.

Disability Insurance

Disability insurance can be closely related to the economic cycle, particularly in response to patterns of recession and fluctuations in unemployment rates. However, the COVID-19 turbulence had different characteristics from the previous economic downturn of 2008. While the 2008 recession primarily affected the financial sector and housing market, the COVID-19 pandemic disrupted almost all sectors, particularly hospitality, travel, entertainment and retail. Moreover, the magnitude and speed of the decline and recovery in employment during the COVID-19 recession were unprecedented. This created a lot of uncertainty during Q2 and Q3 of 2020.

Despite that, and now in hindsight, for disability products including individual disability income and long-term disability, the direct impact on morbidity due to COVID-19 has been minimal. However, we continue to monitor the business for secondary impacts. Two examples of potential secondary impacts on disability morbidity are impacts from a recession related to the pandemic and long-COVID. At this point, we have not seen a material impact on disability morbidity from either of those secondary causes and are optimistic that this will continue to be the case.

In addition, we believe that the increased ability to work remotely is one reason we have been in a period of favorable disability morbidity. It might not be relevant whether the individual is actually exercising the option to work from home. Rather, the option to work from home either fully or part of the time could potentially improve morbidity experience by allowing the insured to continue working.

Elizabeth Walsh, FSA, MAAA, Pension Actuary and Vice President at TIAA

In the pension and retirement market, we observed immediate and direct impacts from COVID-19. There also have been long-lasting indirect impacts in terms of the economic recession and market volatility brought about by the pandemic. I’ll talk about these from the perspectives of members and insurance companies in the pension and retirement market, and I’ll also share prospective outlooks.

Member Behavior Changes

The pandemic created hardship for many, particularly those who lost their jobs and needed immediate financial support. The CARES Act was enacted during the height of the pandemic and allowed individuals affected by COVID-19 to withdraw from their retirement savings plans, including 401(k) plans and IRA accounts, without incurring early withdrawal penalties. This provided immediate financial relief. However, this also meant a decrease in retirement funds, and together with lost income during the pandemic, it is expected that some individuals will have to work longer and retire later than originally planned.

The pandemic also created disruptions in the financial markets. Due to increased market volatility, individuals are reevaluating their retirement fund strategies, opting for more conservative approaches and prioritizing stability and security in their investment strategies. Take 401(k)s, for example. We typically see those who are 20 or 30 years away from retirement opting for more aggressive portfolios and those who are closer to retirement opting for more conservative portfolios. However, based on my experience post-pandemic, we are seeing those who are far away from retirement also making a shift toward more conservative portfolios as they have stuck with the changes in retirement-saving behavior brought about by the pandemic.

Company Perspectives

Generally speaking, companies saw an initial dip in account balance due to decreased levels of contribution and investment activity and individuals making withdrawals against retirement funds. However, given the long-term nature of retirement planning, this initial and short-term impact was perceived as relatively minor, with certain provisions for adverse deviation measures already in place to safeguard against such fluctuations.

Turbulence in the financial market also prompted companies to reassess their investment portfolios, with a greater emphasis on minimizing risk and looking for more diversified investment options. While the investment strategy is designed to withstand market shocks, in my experience, some companies have dialed back on riskier investments and prioritized stability and resilience in response to the economic challenges the pandemic posed.

Prospective Outlooks

As we talked about earlier, some individuals are looking to work longer to make up for the loss of income caused by the pandemic and are waiting longer to tap into their retirement funds. The evolution of the retirement age should be considered in light of these changes. The pandemic also highlighted the importance of robust retirement planning for individuals, with long-term shifts in planning strategies after reevaluating retirement goals and risk tolerance. Individuals may prioritize building larger retirement nest eggs and emergency funds to better prepare for future crises.

From the perspective of insurance companies, these evolving individual behavioral shifts may shape changes in insurance product offerings and retirement planning strategies, with a greater emphasis on flexibility. Companies could respond to a group of knowledgeable individuals who are seeking advice or adjusting their investment portfolios. The pandemic accelerated the adoption of digital financial services, including retirement planning tools and investment platforms. Companies are navigating challenges to meet the evolving needs of retirees and pre-retirees in a post-pandemic world.

Cecelia Hubach, FCAS, MAAA, P&C Actuary and Manager at Ernst & Young LLP

Most of my experience is in private-passenger auto insurance, and I will focus my remarks on this market. The auto insurance market was hit directly and significantly by the pandemic, but we also are seeing some second-degree impacts long after the peak of the pandemic. I will start with some immediate responses to COVID-19 and then discuss second-degree impacts.

Immediate Responses

As reports show, the immediate response to COVID-19 was a sharp drop in driving activity, which led to a drastic reduction in the number of vehicle crashes. This, in turn, resulted in larger profits for carriers during 2020 due to lower claims payouts. Many auto insurance carriers issued premium refunds to policyholders, recognizing the decreased risk they assumed during this period. However, the impact of COVID-19 varied across states, which made it challenging for carriers to analyze data for pricing and prospective rate adjustments. Key considerations included how to interpret data from the height of the COVID-19 period and the relevance and reliability of the data. While ignoring the data entirely may be an option, doing so could potentially overlook important insights into changing driving behaviors and risk profiles.

Second-degree Impacts

There has been a rebound in accident frequency following the initial COVID-19 drop, although it is still not quite back to pre-pandemic levels. Remote work arrangements have led to less time spent commuting. It’s important for carriers to recognize that this shift in behavior may persist, as many individuals have adapted to remote work and changed their commuting patterns accordingly. With remote work becoming more prevalent, people might be spending less time on familiar home-to-work routes and might be spending more time on leisure trips and driving on unfamiliar routes. Different types of driving, such as driving while on vacation, may carry different levels of risk compared to regular commuting. For auto insurance carriers, it’s important to not only look at the overall frequency, but also to understand these shifts in driving behavior—it’s essential for accurately assessing risk and setting appropriate rates.

You might be wondering: If claims frequency is still below pre-pandemic levels, why did my auto insurance rate increase so much in the past year? The cost and severity of claims mainly drive the increase in insurance premiums. Disruptions in the supply chain and labor shortages, coupled with inflationary pressures, have led to much higher repair costs for vehicles. Additionally, while accident frequency may have decreased initially during the pandemic, there could have been a corresponding increase in the severity of accidents. This could be due to factors such as changes in driving behavior and increased speeds on less congested roads.

Similar to the automotive industry, supply chain disruptions and labor shortages have led to higher costs for home insurance. It is important to note that home insurance costs are not directly linked to the market value of the home but are instead based on the cost of repairs and reconstruction. This discrepancy between market value and reconstruction cost can lead to underinsurance for homeowners. Many consumers may not realize that their current coverage might not be sufficient to cover the full cost of rebuilding their home in the event of a claim. While the premium may remain the same, the coverage might not be adequate to address the increased costs of materials and labor.

Things to Monitor

The pandemic caused disruptions in the manufacturing and supply chain processes within the auto industry, which resulted in a shortage of new vehicles, particularly for the model years 2021 and 2022. Manufacturing constraints and higher price tags, coupled with increased financial uncertainties, led to more individuals opting to hold onto their existing vehicles for longer periods. As a result, there are fewer model year 2020 and 2021 cars on the road, and the average age of cars on the road today is slightly higher than before the pandemic. Although there’s no immediate distortion in claims, it would be interesting to monitor the possible impacts.

Research shows that many people relocated during the pandemic. Insurers could consider the transitional impact when individuals relocate, as newcomers to an area may have different driving behaviors and risk profiles.

Finally, I would say the lasting effect of COVID-19 is the change in driving behavior, which may not be reliably predicted based on older data. Carriers now have a wealth of post-COVID-19 data that may provide insights into the “new normal” of driving patterns. Carriers may want to adopt more sophisticated analytical approaches, such as territorial analysis, consideration of demographic shifts and more granulated and segmented experience studies.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

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