The Coronavirus (COVID-19) is having a tremendous impact on our country and President Trump has declared a national emergency. The stock markets have be rocked, and there have been massive cancellations, postponements of most major gatherings. Disruption of this magnitude is bound to have an impact on several industries. As a result, I was recently asked about the impact this may have on the life insurance industry.
How Do Pandemics Affect Life Insurance?
As of today, it is premature to project any future impact this virus may have on insurance rates. The impact has been largely limited to older individuals whose immune system was already compromised. It will take several years of experience before the insurance industry will know if this virus will have a lasting impact on the cost of insurance.
The last time anything like this occurred (that I can remember) was when the AID’s epidemic hit in the mid 80’s. I was a pricing actuary at the time, and recall running scenarios to determine the impact. Although at the time it seemed dire, the impact on the company I worked for was insignificant. It did result in increased testing at lower face amounts (blood test to detect the AID’s virus). However, companies were able to absorb the increase in mortality and did not have to increase costs.
Should Life Insurance Policy Holders Worry?
I have NO concerns over insurance companies solvency. The reserve requirements on insurance companies are sufficient and in many cases redundant. In additions to the reserves, you have RBC (risk based capital) requirements over and above the statutory reserves. And finally, most companies carry significant surplus over and above the RBC and statutory reserve requirements.
Although there have been insurance companies become insolvent, there has NEVER been a death benefit not paid in the insurance industry. The failed companies went into receivership and were absorbed by other carriers.
Evaluating Your Life Insurance Policy in a Pandemic
If you have an insurance policy and/or carrier you are concerned about, it might be a good idea to have your life insurance policy audited. The underlying company may be fine, but the policy may not be!
By doing a policy audit, you will find peace of mind that your policy will be there when it is needed most. At Advisors Resource we have the expertise to assist you with a Policy Audit.