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COVID-19 Impacts on claims - which insurers win or lose?

COVID-19 and associated policy responses impact all types of insurance differently, as media reports have somewhat highlighted recently. 

Vehicle insurers are enjoying a drop in claims due to the low levels of driving, and therefore accidents. Sense partners has a dashboard showing an index for traffic congestion with rates running between 20% and 40% of pre-lockdown levels. As the Insurance Council points out, not all car insurance costs come from driving, consider these complete idiots, but nevertheless, vehicle related thefts should be down too. Guyon Espiner, using overseas experience, estimated the saving to be $100million. I doubt it, especially as the contry gets moving again. There is a saving. There is also a cost - as the economic impact begins to bite, there will be missed premiums and cancelled coverage. Deferred maintenance on vehicles will take its toll as the months and years roll by. New cars are safer too and our fleet will age as people defer vehicle purchases. Some changes could be permanent - converts to cycling and working from home may find driving reduces to the point that the household can do with one less car. A handy change if they have taken a hit to income. But economic impacts will take time to flow through and for now, vehicle insurers have a saving. 

Health insurers are enjoying a drop in claims too as all non-essential medical care was deferred. This is opening up again, but capacity constraints mean that we simply cannot get all the deferred treatment done in the next month - or even the next few months. That has enabled Southern Cross to give back $50 million to policyholders and nib to defer a premium increase to next year. However, for reasons, 

Life, trauma, and income protection insurers will experience an increase in claims. The policy response in New Zealand has limited COVID-19 deaths very successfully. In fact our 'best case' scenario published in the week we started level four restrictions estimated 1,785 deaths and a direct claims impact of $22.8m. That excluded deaths from other causes running above trend. It is now clear that although we could see the number of deaths remain low (assuming no breakout of infection again) we can expect to see the death rate run significantly above trend - albeit much more modestly than the examples I gave from overseas in this article. Why? Although accidental deaths will fall this is expected to be off-set by other factors:

The first is that (as we have previously reported) COVID-19 deaths will probably be underestimated in current statistics as shown by overseas experience, more evidence came from the UK overnight as they restated upwards their COVID-19 death count, plus deaths from other causes will rise as a consequence of the lock-down and deferral of non-essential medical care. In the UK they expect cancer deaths to rise by 20% for this reason.  Life cover is typically five times the amount of trauma cover sums insured - so some trauma claims of $50,000 or $100,000 and a recovered living person will instead become a life insurance claim of $200,000 or $500,000, with a grieving family. Cancer is not alone in benefiting from early detection and treatment. Again, from the UK, medical experts are worried that there aren't enough people attending emergency rooms. For example: 

"... the British Heart Foundation (BHF) said on Thursday that as many as 5,000 people a month who would normally have gone to hospital with symptoms of a possible heart attack are putting their lives at risk by staying at home." from this article.

Again, an earlier intervention, and a smaller insurance claim is being turned into one which is larger, and has a far-reaching economic effect: many people experience their first heart attack while relatively young with plenty of life ahead of them: including a life contributing both personally and economically to their households and communities. These excess deaths will be experienced quickly (unlike the cancer deaths which may take months to emerge). They undoubtedly form a significant part of the excess mortality being seen in other countries.

This leads us to the psychological effects of the pandemic and the economic impacts arising from it and from the policy responses to it. Some of these will be felt in life insurance claims. In the UK researchers see the conditions for a sharp rise in suicides. Our suicide rate is 80% higher than the UK's and our mental health services are an identified weakness in overall health provision. According to Treasury economic forecasts we are headed for a bad recession. It will affect people. Some will die and some will experience bad mental health impacts, claiming on income protection policies. These impacts will likely be distributed over the next four years, based on past recessions, but the impacts will be felt for decades: some families, and the lives of their children, will be blighted by years of lost income and trauma due to the effects of losing a loved on to either suicide, or a prolonged period with severe symptoms. The impact of that on their long-run health, wealth, and happiness will be enormous. For life insurers the claims impacts can run from a $200,000 death claim (using a typical sum insured) to an income protection claim in the region of $1m over ten years. That is contributing to substantial changes to the sale and issue of income protection contracts. 

In sum, the impacts are hard to model and quantify, but they are not zero, they are negative - increasing claims costs - and they are likely to be well within the resources of virtually all insurers to manage. Having said that, you won't have to rely on my gut feeling: the Reserve Bank, however, has already asked for insurers to provide details of stress tests. 

Further work available:

I shall be asking my data folk to follow up in seeking more information about this and I shall expand on the estimates in my forthcoming quarterly market data update. Subscribers to my quarterly life and health sector report are welcome to have a copy of our COVID-19 deaths modelling. Just email me. 

 


Demystifying phishing

At one point or another we are all be targeted by phishing scams. These scams can be done in the form of emails, phone calls or text messages. Some are obvious scams and some are elaborate schemes. If you’ve ever wondered about the thinking behind phishing, here are the five W’s of phishing, with thanks to the Datacom blog

Who: attackers look to target as many people as possible with the same scam email to ensure increased chances of success.

What: attackers are often looking to generate financial gains. This can be done through a number of ways, including accessing your credit card details and selling the information they collect from you.

Where: it is difficult to pinpoint where phishing attacks come from. Unlike early phishing scams, scams today are sometimes articulated very well.

Why: phishing scams are still effective as it uses our own psychology against us. Scammers depend on human emotion, we’ll always respond to stimuli in very human ways. This makes scams difficult to prevent.

When: generally we are getting better at spotting phishing scams although some scams may throw us at times as phishing attacks are still the first-choice method of cyber attackers.

Some of the scams are getting very sophisticated. Some very closely replicate the branding and approaches of major online providers. Others have done their homework - checking out the public web presence of senior managers so that they can send requests to junior staff to pay invoices that look as if they come from the senior managers. It is worth spending some time with staff to talk about phishing scams and to establish in advance protocols for dealing with suspicious circumstances. This is especially important when staff may be working from home - being in different locations means that more email communication may be going on and when in a hurry, mistakes can be made. 


ASIC reminds Australian Industry the regulator is watching

ASIC has reminded life and general insurers that they are watching. In a recent letter (see this link: https://asic.gov.au/about-asic/news-centre/news-items/asic-letters-to-general-and-life-insurers-in-the-current-covid-19-environment/) they have offered some relief from immediate data demands, while reminding the industry of the need to meet conduct obligations. 

Here in New Zealand Minister Faafoi has been more friendly, which is perhaps more appropriate given the nature of our own conduct review.


Partners Life: Mini adviser conference

Partners Life announce that they are hosting a mini adviser conference online on the 30th of April.

It has been split into two sections:

Business section: Naomi Ballantyne interviews Chief Underwriter Clayton Gardner about his Chief Underwriter role and delve into some of the more interesting underwriting issues he has experienced over his career to date. Register here.

Social section: Compete against your peers in the gigantic Partners Life Adviser pub quiz. Register here.

 


Financial sector meetings disclosed by Minister Faafoi

28 Apr 2020 – Minister of Commerce March diary released. Finance sector meetings disclosed included:

  • 6 March - Speak: Westpac and Mastercard's Inclusive Growth Symposium
  • 6 March - Meeting with AA Finance and Suncorp (Paul Smeaton, David Flacks, Ana-Marie Lockyer, Marie Hosking, Helen McNeil and Clayton Cosgrove)
  • 18 March – Meeting with Retirement Commissioner
  • 20 March – Conference call: ANZ (Antonia Watson)

Level Three Trading Update

We are continuing to work in a distributed fashion - all our people will be working from home unless it is absolutely essential to visit the office in order to maintain the maximum social distancing. If you need to contact any of us, me, Fran, Jerusalem, Kelly, or Rob then please email or call our mobiles.

Although, in order to support our local businesses, I will be popping out for a walk to my favourite coffee spot to pick up a takeaway coffee later this morning.