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Survey of Financial Advisers

Impact of Coronavirus on New Zealand Insurers - updated

Insurers, like many other New Zealand businesses, will be affected of Covid-19. Those effects will be complex, but their ability to meet financial commitments will be more than adequate to meet the rise in claims associated with the pandemic.

Before considering the claims impact it is vital to pause and remember that every life lost is a tragedy and an important story in its own right. If it is in any way insensitive to talk about the financial impact of death please excuse me: in life insurance we simply must do that.

We can effectively ignore non-death benefits, as sufferers of Covid-19 appear to either get better, or die - although, of course, there will be some exceptions. This view ignores financial impacts that are not claims - such as the drop in underlying investment values, reduced returns on fixed interest deposits, lapsing of premiums due to reduced economic activity and so on. 

In overview the claims impact will be based on a series of factors: infection rate as a proportion of the population, the death rate, and the overlap between those that die and those that are insured. You can model these yourself simply. At insurers, actuaries will be busy modelling these now. The numbers are painful, but not truly awful. Mainly this is  because expected mortality rises dramatically with age in with Covid-19 infections (see table). That table is based on data from Hubei recently published in The Economist. Globally experience of death rates is still early, but some encouraging signs are shown in, for example, South Korea, where the death rate has been held a lot lower than it was in China, closer to 0.5% compared with somewhere about 4%. The factors contributing to this are not yet clear, but we may share some: better overall population health - the baseline from which everyone starts is an important factor. Return to the chart and consider how life insurance ownership declines rapidly with age whereas mortality rates rise with age - the fifties are known as the lapse decade and few people own life insurance well into their sixties. This should reduce the factor in your modeling for the proportion insured. While funeral cover is popular among older age groups these cover values are very low.

Insurers will need to advise regulators of expected impacts and fitness, I doubt any will have to raise serious concerns.

Yet there will be impacts. Although the largest of these, at this stage, will be on those most closely connected with the travel and tourism sector, insurers will experience knock-on effects. Also, like others, they will have to consider more home-working, and a reduction in large public gatherings. The economic effects will be serious, probably resulting in recession, and that may last over a year. Look at the announcements this morning from Air New Zealand. 

A more detailed review will be included in the quarterly life and health sector report.

Annotation 2020-03-15 091928


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Of course insurance companies will be affected by coronavirus, but in my opinion, all businesses are affected more or less.

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