Life Insurers Raise Concerns Over Surging “Excess Mortality”

Despite indications of a decrease in excess mortality rates, life insurance industry leaders and actuaries express deep concern, foreseeing a prolonged period of elevated death claims and continued strain on profits. Excess mortality, defined as the surplus of actual deaths over the expected numbers, has remained worryingly high despite a decline in COVID infection rates, prompting apprehension among health authorities and experts within the field.

Throughout 2021, the insurance sector faced record-high claim payouts due to increased mortality caused by the pandemic, significantly impacting their financial reports. In that year alone, the industry disbursed a historic $100.28 billion in total death benefits, as reported by BestLink. The surge in payouts initiated in 2020, marking a staggering 15.4% rise—the most substantial annual increase since the 1918 Spanish Flu outbreak.

While the increase in 2021 lessened to 10.8%, it remained notably elevated compared to pre-pandemic figures. Although there was a decline in payouts during the initial nine months of 2022 compared to the same period in 2021, the figures remained higher than those from 2019, before the pandemic took hold, according to data from BestLink.

Measuring Excess Mortality: Lack of a Universal Standard

“There isn’t a universally accepted method to gauge excess mortality,” explained Josh Stirling, the founder of the Insurance Collaboration to Save Lives, an organization aiming to help life insurers prevent mortality losses by offering health screenings for policyholders. “However, based on what appears to be the most reliable data, it seems that we’re observing roughly 13.9 deaths per 100,000, which represents about a 7% increase from expected rates. Is this catastrophic? Perhaps not, but it ought to be lower.”

Surveys conducted by the Society of Actuaries among its members revealed that in August of the prior year, 85% anticipated ongoing excess mortality rates until 2025. Two months ago, the same survey indicated that 79% believed these elevated mortality rates would persist through 2026.

The challenge lies in the variability of figures, heavily influenced by data segmentation, adjustments for timeframes, age demographics, specific health conditions, and numerous other factors. Some industry executives consider the current statistics as transient or seasonal, not necessitating immediate action from the sector.

Fred Tavan, the chief pricing officer at Legal & General America, a significant provider of term life insurance in the U.S., expressed, “We anticipate a continual decrease in excess deaths within the insured population over the next few years, eventually reaching a point of 0% excess deaths by 2030. This partly explains why insurance premiums have remained largely stable during and after COVID. A review of premiums across various carriers within the industry supports this perspective.”

Youth Mortality Surges: A 20%+ Increase in Mortality Rates

Others, however, are less optimistic and highlight data from the U.S. Center for Disease Control indicating a troubling surge in mortality rates across different demographics. For instance, the CDC reported a more than 20% increase in mortality rates among younger adults in 2023. Analysis of causes of death reveals a rise in cardiac mortality across all age groups. Despite a decline in COVID-related causes in 2022, other causes like stroke, diabetes, kidney, and liver diseases saw an upward trend.

Samantha Chow, the global leader for the Life, Annuity, and Benefits Sector at Capgemini, a prominent multinational consulting company based in Paris, pointed out, “Consider the cascading effects of COVID-19, leading to heightened rates of depression, suicide, and increased substance abuse. This has set off a chain reaction.

From the perspective of life insurers, retirement planners, and those dealing with long-term care solutions, there’s a larger conversation at play. Can the industry cope with a sudden surge in claims? The unexpected increase in excess deaths has caught insurance providers off guard, and our aging population is becoming more vulnerable to illnesses or natural passing.”

Concerns Over Managing Elevated Payouts

Chow expressed genuine concerns about whether the insurance industry is equipped to manage the substantial payouts that will arise from the elevated mortality rates. “The primary worry for life insurers is gearing up for an unforeseen influx of death claims and its impact on their assets under management,” she emphasized. “Do they possess adequate reserves to withstand these outflows, considering the surplus deaths? It’s not solely about mortality or health; it’s about the industry’s readiness and capacity to handle this significant outflow.”

Capgemini recently released its World Life Insurance Report, highlighting the impending largest transfer of inter-generational wealth in history, expected to result in a massive outflow of nearly 40% of life insurers’ assets under management (AUM), totaling $7.8 trillion, by 2040.

“The report underscores the urgency for the industry when we factor in the escalating payouts on death claims. The scale of the situation necessitates immediate attention from the industry,” the report stressed.

Certain observers believe that the industry has been sluggish in understanding the growing issue, leaning on traditional industry models that suggest “mortality rates consistently revert to the mean, a trend seen over almost five centuries,” as noted by a senior executive.

Stirling advocates for a broader, more assertive approach to health screenings for policyholders, viewing it as a means to save lives and offer substantial cost benefits for insurers.

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