COVID-19 Brings Uncertainty To Insurance, Retirement Plans

A lot of uncertainty surrounds the effects of COVID-19 on insurance, analysts with the American Academy of Actuaries said during a webinar on Tuesday.

Cori Uccello, senior health fellow with the academy, was one of several academy experts who spoke on the way the pandemic will affect health insurance, property/casualty insurance, life insurance and retirement plans.

COVID-19’s effect on health insurance has much uncertainty regarding what will happen in the remainder of 2020 and the expectations going into 2021, Uccello said. The effects also will vary by geographic area and insurer.

As for health spending, she said, much depends on whether additional waves of COVID-19 will arise later this year. Better preparedness – such as availability of testing and contact tracing – could lessen the impact of any future waves. The availability of new treatments or vaccines also will impact health spending, she said, cautioning that it could take anywhere from 12 to 18 months to develop, test and approve a vaccine.

There was some reduction in health spending for non-COVID-19 care, Uccello noted. Many consumers deferred or avoided care due to social distancing or from a desire to free up hospital space for COVID-19 patients. In addition, consumers increased their use of telehealth to replace some in-person medical visits. The health care sector lost 43,000 jobs in March, mainly as a result of fewer non-essential procedures being done.

Uccello predicted a future increase in health care usage due to pent-up demand for non-COVID-19 services. In addition, not all deferred health care was nonessential. Worsening of untreated conditions could result in an increased need for health care in the future.

In the individual health insurance market, 2020 premiums are already set and can’t be changed. However, the risk pool could change, Uccello said. There is uncertainty over the way claims will differ from expected. There may be higher costs related to COVID-19 as the costs of testing and related services have been waived. In addition, although there is a temporary reduction in non-COVID-19 services, no one knows when pent-up demand for health care services will occur.

Health insurers are currently determining their 2021 premiums. In figuring those premiums, insurers are facing uncertainty over whether additional COVID-19 waves will occur in 2021, the degree of pent-up demand for non-COVID treatments, the risk pool profile, and the availability of new treatments, vaccines or tests.

On the group insurance side, Uccello said, enrollment is declining as businesses close, drop coverage or lay off workers.

Property/Casualty Insurance

There are far more unknowns than knowns as to how COVID-19 will affect property/casualty insurance, said Rich Gibson, senior casualty fellow with the academy.

Auto insurance is the area of the P/C world in which COVID-19 will have an immediate effect on consumers, he said. With a near-term dramatic decline in auto insurance claims, carriers are issuing refunds and credits to their customers. Gibson it is unknown how long this period of low auto insurance claims will extend.

COVID-19 also brought business interruption to the forefront. With so many businesses closed as a result of COVID-19, political and public pressure is being placed on carriers over whether those closures are covered under business interruption insurance. Gibson said this issue is likely to play out over time.

States have looked at legislation regarding business interruption, expanding coverage beyond what the industry believes is covered; but no such legislation has been enacted yet, Gibson said. On the federal level, H.R. 6494, the proposed Business Interruption Insurance Coverage Act, has been introduced. In addition, the proposed Pandemic Risk Insurance Act may be included in financial relief/stimulus legislation.

Life Insurance

The impact of COVID-19 on life insurance is expected to emerge slowly, said Nancy Bennett, senior life fellow with the academy. COVID-19 may exacerbate low interest rates and create new challenges, she added.

The impact from COVID-19 claims is expected to be manageable, she said, but may be challenging for some individual carriers. However, she added, life insurers are well-capitalized with established risk management processes including the identification, quantification and mitigation of risks.

The short-term impact of COVID-19 on insurance includes late premium collection and extension of grace periods, she said. In addition, life insurers are seeing changes to underwriting, retention limits, reduced face amounts and limits on issue ages.

In the medium term, Bennett said, the academy predicts a strain on life insurers’ earnings and capital due to market volatility and low interest rates. Life insurers also may see a strain on operations and strategic responses due to continuing uncertainties.

A longer-term impact on life insurers, Bennett said, could include changes in produce design or pricing as a result of COVID-19 mortality, permanent changes in business operations such as underwriting, and long-term consequences of the financial fallout to investment strategies.

Actuarial modeling of past pandemics suggests that the life insurance industry can withstand a severe pandemic, Bennett said. She also said life insurers have sufficient reserves to cover excess deaths due to COVID-19.

Retirement Plans

COVID-19 has tested every aspect of the American retirement system, said Linda Stone, senior pension fellow with the academy. The crisis puts more Americans’ retirement security at risk due to loss of job and income, reduction in their retirement accounts, loss of employer retirement plans, and inability to save.

For corporate plan sponsors, the CARES Act allowed them to postpone contributing to plans until Jan. 1, 2021, with interest. The act also allows them to defer paying their portion of the Social Security tax.

For multiemployer plans, some industries have increased their workers’ hours (grocery stores, for example) while other industries have been decimated (such as hospitality and entertainment).

State and local government plan sponsors face decreased tax revenues while many of their employees are front-line essential workers (police, fire, sanitation, transit).

Pension plans are challenged by low interest rates, Stone said. Companies in need of cash will consider plan freezes, which stop participation and accruals for employees. Some corporate plan sponsors have announced they will suspend or reduce their company match, similar to the move many of them did during the 2008-2009 financial crisis.

COVID-19 highlights the risk placed on individuals to plan and finance their own retirement, Stone said. Many workers struggle to pay for basic necessities, and those who lose their jobs also lose their retirement benefits. About 50% of workers don’t participate in any retirement plan and only 12% of private industry workers have a defined benefit plan. In addition, the market downturn in 401(k) assets disrupts retirement plans and security.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.