Protection faces crunch year

He says: “As with many things, the anticipation is worse than the event. Claims are coming in, but not in the volumes feared.” 

Customer and industry cost

Although it is early days and there are many factors to be assessed, there is nevertheless evidence to suggest that the effect of coronavirus claims on the industry could be considerable.

Emma Walker, chief marketing officer at life insurance broker LifeSearch, says: “As at May 13, there were 33,186 Covid-19 related deaths in the UK and, while the projections are currently unclear, if even half of those people had life insurance or critical illness cover then insurers will have to pay out a significant sum. 

“There’s no doubt that insurers will feel the impact of Covid-19.” 

Martin Shaw, chief executive at the Association of Financial Mutuals, also takes the view that the number of claims could be significant.

Mr Shaw says: “The Office for National Statistics has revealed that the number of deaths in 2020 is currently higher than the five-year average. If this trend continues, it clearly has an impact on the number of death claims protection insurers are likely to see.  

“Income protection providers are already reporting significant increases in claims, as a result of people becoming ill, but also for people being shielded during the pandemic.”

Paul Yates, product strategy director at life insurance software company iPipeline, also anticipates that coronavirus claims could arise indirectly.

“There may be a growth in claims as a result of people not seeking treatment for other illness [due to] Covid-19,” Mr Yates warns.

“We do not understand the long-term health impact on those who have recovered from Covid-19. US data suggests some survivors exhibit neurological impacts following a Covid-19 infection. There are also questions around additional seizures and cardiac issues.”

And there will be repercussions from a high volume of claims, Ms Walker says.

She adds: “There will be a knock-on effect as insurers look to recoup the money that’s been paid out from the large number of Covid-19 claims.”  

Mr Yates also believes that customers as well as insurers will be affected as higher claim rates may result in pricing changes or the withdrawal of certain products.

There are already indications that the industry is taking action to combat the potential impact of claims, with Covid-19 exclusions introduced in new income protection policies. 

Mr Sawyer explains: “Most exclusions are for policies with lower deferment periods, however, I believe that excluding Covid-19 permanently would be excessive.

“Some policies are excluding Covid-19, pneumonia and respiratory illnesses for the first 12 months of the policy only, which in my view is a more reasonable approach to take until the data is there to support excluding it forever.”