Insurers weigh up pandemic impact

A global pandemic should not prove to be a major hurdle for life insurers in this country, says the former chief executive of one of them.

Thursday, April 30th 2020, 11:40AM

Milton Jennings

The New Zealand economy has been rocked by Covid-19 and the subsequent response to it.

But Milton Jennings, former chief executive of Fidelity Life, said it should not be a significant problem for life insurers.

"We always found in a recession, business seemed to go up. People became more risk-averse in a downturn. They tend to keep life cover or take out life cover."

He said that meant life insurers should do "reasonably well" through the disruption.

During the global financial crisis, Fidelity Life's profits barely changed, he said.

"We seemed to get through reasonably well … we weren’t struggling. We were going through a strong period of growth anyway at the time but we seemed to make it through quite nicely."

But insurance commentator and consultant Russell Hutchinson said the Covid-19 outbreak was different.

He said health insurers would have a period of reduced claims as people put off most medical treatments and procedures. That had enabled some, such as Southern Cross, to refund premiums to customers, and provided an extra buffer to others.

But those providing life, trauma and income protection policies would take a hit as claims increased.

Data around the world had shown an increase in deaths during Covid-19 outbreaks, even if those deaths were not attributable to Covid-19.

But there were other non-Covid-19 reasons that deaths might increase as a result of the response to the outbreak – people were putting off going to the emergency room for treatment because they were worried about using resources or that they might catch Covid-19.

There were also cancer diagnoses being deferred because people were not seeking their regular medical treatment.

The economic impact of the lockdown could also affect people’s mental health and lead to more income protection claims into next year, he said.

Hutchinson said the Reserve Bank had been inquiring of insurers whether they had the capital buffers in place to cope. "We might end up with more mortality from the lockdown than the number of deaths from the virus but that’s the wrong comparison. It should be offset against the deaths spared."

Partners Life managing director Naomi Ballantyne said she was expecting more disability claims because of mental health issues in the months ahead. "We are also anticipating currently open and future disability claims will last for longer durations because of the reduction in available jobs in our economy in the years ahead. In other words, we expect claims to increase not reduce.

"In addition, we expect lapses will increase due to affordability issues over the longer term for people without jobs. This will mean less premium revenue than expected at the same time as claims are increasing. So yes, the life insurance industry is expecting a negative impact on its profitability."

Tags: Covid-19 insurance Life insurance Milton Jennings Russell Hutchinson