Insurers are used to dealing with the unexpected, but determining the long-term effects of the Covid-19 pandemic could be especially difficult.
Tough questions have arisen regarding how the more than one million Covid-19 deaths in the United States, as well as millions more cases, will alter the population's future mortality and disability risk profile. On the one hand, Covid-19 killed many people who were already sick, and vaccination is now widely available, along with new treatments for those who do become ill. On the other hand, many people postpone preventive care. And millions of people may continue to suffer from a cluster of symptoms that are considered indicators of what is known as long Covid.
"We're at a tipping point, and it's unclear where risk will go," says Stuart Silverman, principal and consulting actuary at Milliman, which works with insurance companies.
Covid-19's impact on life, disability, and other insurers has already gone beyond deaths. This includes claims for workers' compensation. Getting sick with a contagious illness, such as the flu you may have caught at work, was unusual in the past. According to the National Council on Compensation Insurance, 20 U.S. states adopted some form of so-called coverage presumption measures during the pandemic, generally for people such as front-line workers and others who needed to work in-person. According to Brian Schneider, senior director of insurance at Fitch Ratings, approximately 10% of all workers' compensation claims in 2020 will be related to Covid-19.
Many claims sought to recoup lost wages, but others required extensive medical treatment. According to a Workers' Compensation Insurance Rating Bureau of California study of thousands of claims, approximately 11% of claims for mild Covid infections also involved workers receiving medical treatment for long Covid symptoms in the four months following acute care. For severe and critical cases, this increased to around 36% and 40%, respectively.
"The potential long-term cost impacts of long Covid on healthcare systems and disability insurance programs are also becoming increasingly concerning," wrote WCIRB in a recent study. It also intends to "investigate estimating the extent of permanent disability associated with Covid-19" in workers' compensation. According to the NCCI, many special presumption measures have expired. However, increased prevalence, awareness, or medical certainty about long Covid could lead to a broader discussion of these benefits.
Other types of income-protection insurance may also be impacted. Large publicly traded insurers saw an increase in loss ratios—a measure of the cost of claims as a percentage of premiums collected—for group disability policies, which are frequently offered by employers last year. According to Wells Fargo insurance analysts, the average ratio across five large public insurers was around 73 percent in 2020 and then jumped nearly 4 percentage points in 2021.
This is due in part to normalization from low levels in the early stages of the pandemic. However, insurers are also bracing for some lingering Covid claims.
"We are seeing a modest amount of claims coming in from long Covid meet the definition of a long-term disability," Hartford Financial Services Group CEO Christopher Swift told analysts on a call earlier this year, which "is dictating some of the pricing expectations that are changing" to cover some of that risk.
According to Jeremy Lane, head of life-and-health products for the Americas at Swiss Re, insurers aren't yet working with a universal definition of long Covid. According to him, a clearer definition could assist insurers in forecasting risk, similar to how they managed the emergence of conditions such as Lyme disease or chronic fatigue syndrome.
There are also counter-trends. People may be able to return to work sooner or avoid future illness as vaccines and other treatments become more widely available. A strong labor market also means that fewer people are concerned about their future earnings and may be less likely to file disability claims. Fears about long-term care may also drive more sales of disability policies, which, if priced appropriately, may drive profitable growth.
However, this raises the prospect of future claim pressure due to both job insecurity and extended illness. A lingering illness combined with a weakening economy could be a difficult combination.