COVID-19 Implications on the Life Insurance Industry

APR 19, 2020 | PRACTUS LLP

COVID-19 Implications on the Life Insurance Industry

Authored by Robert Hebron


Like many businesses, the implications on the life insurance industry from COVID-19 is causing many challenges, but also opportunity. The COVID-19 (coronavirus) pandemic has completely changed the global economy and the systems we’ve come to rely on for so long. And though we are in dire times, the U.S. life insurance industry is still a necessary and essential service intended to add a sense of stability and security through tragedy. As consumers, the way we access, shop for, and are sold life insurance could be completely altered once the cloud of coronavirus has lifted. 

Below, we outline a quick history of a previous (yet eerily similar) pandemic that brought about radical change to how families are covered. Examined below are the implications on the life insurance industry, the current challenges and opportunities that insurers and customers alike could be facing and our prediction for how this disruption will further shape the trends and priorities of both pandemics.

Loss of Life and the Repercussions of COVID-19

As of early April, experts have reduced the projected death toll relating to COVID-19 to 60,000 from the originally estimated 100,000 – 200,000 deaths in the United States.  Even with tactics like social distancing being practiced, this number is still drastic and unimaginable.  Additionally, given the age range of those most at risk of the virus, this pandemic will likely surpass the financial impacts when compared to the bird flu and other pandemics.

Coronavirus poses challenges to how life insurers will rethink the way they handle crisis management and construct their policies. The older the affected population, the greater the impact will be on companies issuing individual life insurance policies. This fear is being realized as several sectors are facing financial crises and local businesses are at risk of closing. Today, younger workers rely more on employer-provided group life insurance coverage for their needs.  As we observe the instability businesses are facing due to the virus, drastic pitfalls in existing and new coverage plans are becoming apparent. Lastly, the financial implications are an even greater burden faced by the families of those who fall victim to COVID-19. 

History is Repeating Itself in the United States

For centuries the life insurance industry and its products have been used to mitigate the load faced by those closest to the unexpectedly-deceased. Life insurers have served as an important societal positive that should always be encouraged.   

Issues brought by the COVID-19 (coronavirus) pandemic to the life insurance sector today aren’t entirely unique.  In 1918, the “Spanish flu” epidemic almost brought the life insurance industry to its knees. It resulted in a very profound change to how insurers conducted business.  And after the epidemic passed, it provoked a very needed and important regulatory response designed to ensure the long-term financial viability of the industry.   

Today, that challenge reappears for life insurers. The life insurance industry, affiliated companies and their regulators face important challenges.  Addressing these will determine whether policies can remain relevant and fulfill their mission of protecting families and businesses in the face of a provider or founder’s death.

Shifting Priorities & Implications on the Life Insurance Industry

We are currently experiencing a shift from the life insurance consumer population. There is a resurgence of demand for this industry’s product and a need for innovations on the supply side. With the possible exception of online term insurance sales, life insurance has typically been “sold” rather than “bought”. 

This is especially noticeable in the “middle market” of middle income families and small businesses dependent on an individual breadwinner or leader. This segment of the marketplace has received less attention in recent decades from life insurers and their distributors. Typically, this has been a market reached through a heavy dose of face to face contact. Also, a common challenge of these interactions has been reaching a consumer who historically favored other spending priorities. 

So, not only is this pandemic shifting the direction of consumer disposable income, it’s affecting how they prepare themselves and their families from future unexpected events. Today, the underserved and relatively under penetrated “middle market” is beginning to see, in very stark terms, the need for permanent life insurance coverage.

Opportunity is Knocking for Long Term Life Insurers

With disruption due to the COVID-19 pandemic, the situation presents an opportunity for the industry and its distributors to grow significantly. 

Those in the regulatory and legislative environment should lean into efforts around creating a long term social safety net. Unfortunately, the government is not likely to create this space on its own and the industry faces substantial challenges. To be successful, those in this sector must work together to remake themselves or face a weakened market.

The alternative of switching to a purely risk-averse mentality will undoubtedly result in a shrinking industry that cannot serve its greater societal purpose. The short-term and long-term consequences of doing nothing are nothing short of severe. The future will depend on swift action and a modernized approach to a traditional environment.

Stay tuned for our next blog post! Next, I focus on the challenges to distribution networks and the need for new reinsurance strategies in addressing concerns and opportunities posed by COVID-19.

The Authors
Robert Hebron
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Practus, LLP provides this information as a service to clients and others for educational purposes only. It should not be construed or relied on as legal advice or to create an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.

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