How many people have never had a conversation about life insurance?

Okay, I know that life insurance is not quite the compelling subject for others as it is for me, but AIA recently conducted some research which revealed a quite astonishing fact: 

"... two thirds of Kiwis having never had a conversation about life insurance..." 

Thanks to Nick Stanhope, CEO of AIA, for bringing that to our attention. It is a wake up call for the sector. Of course, some people have had a conversation and forgotten it - which is, when you think about it, the same thing. Remember the proverb: "To know, and yet not act, is not to know". Some people are unable or simply do not require cover - but to be unaware of it entirely is a massive failure on the part of the industry. If there is responsibility to be attached to this concern, then it is the responsibility of the industry, not the consumer, to provide a remedy. 


New Zealand’s population nears 5.1 million

Stats NZ announce that population growth appears to have accelerated. 

New Zealand’s estimated resident population reached 5,084,300 at 30 June 2020, Stats NZ said today.

These are the first population estimates to fully incorporate the 2018 Census and 2018 Post-enumeration survey (PES) results.

"One of the purposes of running a census is to recalibrate national and subnational population estimates," population insights senior manager Brooke Theyers said.

"The census coverage results from the 2018 PES, also released today, are crucial to ensure the population estimates are the best possible measure of how many people live in every community across New Zealand."

This is a normal revision of population estimates that takes place after census and PES results are available. Estimates back to 2013 have now been revised. Estimates after 30 June 2018 now use the 2018-base estimated resident population as the starting-point.

New Zealand's resident population based on the 2018 Census is estimated to be 4,900,600 at 30 June 2018. This is higher by 60,000 than the previous estimate at that date. The population is estimated to have eclipsed 5 million in September 2019. Provisional estimates initially indicated the milestone was reached in March 2020 (see New Zealand’s population passes 5 million).

"The updated estimates confirm that the growth of New Zealand's population has been relatively high, averaging 1.9 percent a year in the 7 years ended June 2020," Mrs Theyers said.

"Growth in the previous 20 years averaged 1.1 percent a year."

The higher population growth since 2013 was driven by net migration (migrant arrivals minus migrant departures), which contributed two-thirds of the growth, or an average of 56,000 a year. Natural increase (births minus deaths) contributed the remaining one-third, or an average of 27,500 a year.

In updating market dynamics for modelling future opportunities the normally resident population is the defining variable for the boundary of the market. Growth means we expect added opportunity for insurers, although we look for that in the working age population sub-segment.

Two charts illustrate the growth: 

Annual population change
Annual population change

 

 


Lack of market maturity insulates insurers in the COVID-19 crisis

The the market for insurance has grown significantly in recent years. Chatswood defines the market as people with both the money, need, and health sufficient to buy insurance coverage. A rough proxy for this is the number of people in work between the ages of 16 and 65. Analysing the 2018 to 2019 year we found that when allowing for people entering and leaving the market the number of eligible people had grown by over 50,000 (up 1.4%) and GDP per capita had grown by 1.3%. This reflects the situation applicable for most of the last five years – a net increase in eligible people of around 50,000 per year. Giving us a number of about 2.6m people employed in June last year. That will take a big hit this year, but we also estimate that there are about a million people who have no cover, and probably about another million (based on Massey University research and other industry sources) who have less cover than they need. That presents us with a big cushion: as the size of the unmet opportunity is large compared to the size of the expected unemployment and income hit to come in the year. In effect, underinsurance, an industry weakness, dilutes the effect of the economic impact on the sector, provided we are prepared to see it as an opportunity, not as a fixed and immovable problem. 


Insurance timeline data: who did what, when

Some of our regular readers may have noticed that Chatswood has been busy re-jigging our news service - the changes that you have see in this blog, to pick a lead item for news, and list other news items with links below, and steadily post those through the week is just the tip of the iceberg, however. Jerusalem Hibru, who has recently celebrated her first year full-time with Chatswood, has been doing a great job of combing through the daily stream of news. We have expanded our sources, hunting out more newsletters, web-sites, and advisers to help keep us up to date. Jerusalem receives a daily feed of regulatory and legal news compiled by Rob Dowler to add to the news feed. This feed is then added to a news database, recently developed by Fran to formalise the collection. Also added to the database are product changes and pricing changes. This system has been in development for about six months now. In addition to the current daily flow of data we have been loading history into the database.

What are the features of all this activity? How does it help you?

Our first aim is to ensure the most comprehensive overview of news relating to life and health insurers and organisations that have a significant stake in or affect on that sector. That enables us to improve the products that rely on these news items - most importantly the quarterly life and health sector review. This complements the improved financial sector reporting that Wanyi Yang has been helping us deliver over the past year. Progressively over the last few quarters subscribers have seen expanded news sections for each insurer. This quarter the emphasis on data collection at the time the news is collected means that we will automate the production of the company news reports - further reducing scope for transcription and editorial error. It also opens up opportunities for additional services. We now have a strong library of insurer company reports, including news, and main strengths and weaknesses, which are useful for anyone who is making or stating a recommendation for an insurer. Further, for insurers that wish to explore, say, the history on a subject, we can now query our database, rather than have to leaf through previous reports. A question such as all price changes for IP products in the last two years can easily now be run as a query. If we then want to expand that to include IP product news, that can easily be added to the same extract. We can also easily define the scope of the insurers to include in that query. We can base extracts on themes: such as everything an insurer has stated with regard to conduct. 

It is part of a progressive revision of all the syndicated research that we produce. There will be further changes as we proceed through the work plan. It has also been a great process to enable more collaboration between different members of the Chatswood team. Do let me know if you have feedback on the changes, or ideas about how you would like to make use of the information. 

 


Age and population standardised mortality data for 2020 compared to 2019

Following the article by Farah Hancock we had our new data specialist Ed Foster take a look at mortality data. They standardised the mortality rate per capita and also for age and gender demographics. By those calculations New Zealand experienced 116 fewer deaths than would be expected. Within the context of a year in which we would normally see about 30,000 deaths, this is a very small number. But what it show is a continuing absence of excess mortality seen in other markets.

Cause of death is not officially released until 6 months after the event, but we do know for sure that there have been fewer road and work related deaths - this may go some way in explaining the gap. Also, we know that rates of 'flu and 'flu-like illnesses have dropped due to the recent lock-down - and these cause some deaths too, and that number will be much lower. There is still plenty of bad news to wash through the economic system, and hit people's lives: as headlines about redundancies show. There are also the consequences of deferred treatment to examine. We shall be reporting on this in more detail in each of the next two or three quarterly life and health sector reports, as there is still more to be learned. 

We are happy to share data tables if you would like to take a look. 


Advice Logic

It was great fun to be a guest of Partners Life at their online mini-conference. Kris Ballantyne, GM Marketing and Product, and Tim von Dadelszen, GM Digital and Innovation to talk about advice logic: the science behind giving advice, why process is important, and evidence-based concepts for setting sums insured. Partners Life has published the session, which you can view here: 

https://player.vimeo.com/video/415385322 

Advicelogic image 2020-05-09 173550

Working on the content for this session included talking with advisers who are passionate about giving good advice in a way that has rigour and a basis that can stand scrutiny. I particularly appreciate the input and challenges from Royden Shotter, Anand Srinivasan, and Jeremy Bernstein, although there are many more that routinely contribute to the subject. 


NZ death rate data tracking

No sooner had I asked my new data analyst to get up to date death rate data, I see this article: Farah Hancock at newsroom.co.nz has an excellent piece on expected death rates versus actual death rates for recent weeks for New Zealand. Hancock takes the data trends reporting from northern hemisphere countries and sought the same information here: 

"Overall, there have been 129 more deaths this year between January 1 and April 29. Nineteen of those are attributed to Covid-19. As in previous years, weekly fluctuations are seeing the 2020 line both dropping and rising above the historical average calculated on weekly deaths each year from 2015 to 2019."

It should be noted that Statistics NZ show the moving average (see link to full article below) as:

"After smoothing the fluctuations out by averaging them against the week either side, he said numbers have trended down a little."

That's good - ideally it shows that we are probably counting our COVID-19 deaths accurately - which is surely easier to do when they number in tens not thousands, another benefit of the approach taken to managing the pandemic here. It is a data set we will now continue to keep an eye on as COVID-19 is not the only factor - as highlighted in the UK there are concerns that consumers may not be using health services as much as they should due to concern that they do not wish to put more pressure on services that may need to be used by others, or fears that they could catch COVID-19. That risk is now very low. Insurers and advisers can encourage clients to seek early diagnosis and to keep up appointments for treatment. In the UK, for example, significant numbers of chemotherapy appointments are being missed. Links to those articles are in this post below. We need to avoid that situation here in order to prevent knock on effects such as increasing cancer deaths. 

Hancock also refers to The Ministry of Health statement that there had not been a surge in suicide deaths after an online troll had asserted a large rise. As the MOH put it in their release: 

“The Covid-19 response may have significant, long-term effects on people’s lives BUT it is not inevitable that there will be a significant increase in serious mental health issues or suicides.”

“Suicide numbers may increase as a result of the Covid-19 response and they may decrease. Data from previous international crises have shown both outcomes ... Every life matters; it’s vital we focus on preserving life rather than speculating about the likelihood of ending it." 

This is a great message. Life insurance is a grim business, of course, as regrettably we are required to consider what impact events will have on future claims, especially when being asked for updated forecasts by shareholders and regulators interested to understand resilience in the face of claims increases. We know, for example, that income protection claims tend to last longer during recessions. Recessions tend to worsen mental health problems and New Zealand has a poor record on suicide prevention. Some of the likely claims impacts are explored at a high level in this post below. This is also an opportunity for insurers and financial advisers to contribute to a wider community message on prevention and management of mental health issues. Subscribers to the quarterly market data report will see death rate reporting in that for at least the next few quarters. 


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.