CoronavirusMay 20 2020

Protection faces crunch year

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Protection faces crunch year

Fortunately, policyholders are covered for Covid-19, despite it being a new virus, as Simon Jacobs, head of underwriting and claims at Aegon, confirms: “Coronavirus is not excluded from any of our protection policies. We’ll treat customers who sadly die or become critically ill as a result of coronavirus in line with our existing claims philosophy.”

Royal London takes a similar approach, as Craig Paterson, underwriting and claims philosophy manager, reports.

He says: “Royal London policies cover claims for pandemics such as Covid-19 and death or critical illness claims related to the virus will be paid in full in line with the terms and conditions of the policy.”

Key Points:

  • Insurers are currently covering claims for coronavirus
  • The full impact of coronavirus on protection claims is not yet known
  • The crisis could change customer perception of risks and industry

And claims are being paid.

LV reports that it has already paid out more than £2.5m on coronavirus-related, income protection and death claims.  

So, is this the start of a heavier influx of life insurance and income protection claims for the insurance industry? 

“The industry is expecting a wave of claims and will be paying out more than would have been expected in normal times,” says Peter Hamilton, head of retail protection at Zurich.

“We are currently processing more than 200 death claims, and sadly we expect many more.”

Waiting game

However, the whole picture may not be revealed for some time, according to Mr Jacobs.

He adds: “The full impact of coronavirus on protection claims may not be known for many months and until we can compare 2020 with previous years.” 

Mr Paterson agrees, adding: “We’ve already received a substantial number of claims linked to Covid-19, but it’s too early to tell what the impact will be on the volume and amount of claims we and the rest of the industry pays.”

Mr Jacobs also observes that the volume of claims might be counteracted by other factors.

He says: “It will be interesting to see whether the expected increase in coronavirus-related claims might be, to some extent, balanced out by the impact lockdown might have on death rates.

“With fewer people travelling and fewer people in the workplace, we would expect to see a reduction in life insurance claims — for example, due to road traffic accidents.”

There are some grey areas to consider too. As Mr Jacobs explains, it would be difficult to attribute any increase in claims specifically to coronavirus.

He says: “In fact, it may not always be easy to identify whether coronavirus may have been a factor, as many deaths will occur in those who also have serious underlying medical conditions.

“The accuracy of our claims data will depend on the cause of death stated on death certificates.”

So the industry is bracing itself for a wave of coronavirus claims.

But according to Ian Sawyer, commercial director at life and health insurance intermediary, Assured Futures, the volume might not be as high as initially estimated.

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.”

Reflecting on these new developments, Rob Harvey, head of protection advice at Drewberry, adds: “I hope these exclusions might be removed but we need to see where we are by the end of the summer.”  

While the full impact of the pandemic claims is as yet unknown, the general outlook for the industry is positive, according to Ms Walker, who says: “It will be tough for the foreseeable future, but as pre-pandemic normality begins to set in, the ship will right itself and many things will carry on like they did before.”  

Taking an optimistic view, Mr Jacobs adds: “I think the protection industry is resilient and will use what has been learned from this experience.”

Customers may take stock of things too, says Mr Hamilton.

He says: “The claims represent an immediate short-term impact on the industry; longer term it may be that we will see perceptions of the industry enhanced by changing customer insights into the risks they face and their resilience to unexpected financial shocks.” 

Fiona Nicolson is a freelance journalist