Pandemic Risk Models Being Adapted By Insurers After Surge In Claims In 2021

Following a more than anticipated surge in Covid-19 claims in 2021, life insurers are predicting a five-year-long pandemic and more variants that are even more transmissible.     

According to a report released by insurance broker Howden, the global life insurance industry was hit with reported claims of $5.5 billion in the first nine months of 2021, compared to $3.5 billion for the entire year of 2020, despite the industry expecting lower payouts due to vaccine rollout.

“We definitely paid out more than I had anticipated at the beginning of last year,” said Hannover Re board member Klaus Miller.

The emergence of the Delta variant of the coronavirus, which is twice as transmissible than the previous ones and was more likely to result in hospitalization compared to the original coronavirus strain, was largely responsible for the rise in the insurance claims last year.

Because of the more lethal variants and an increase in mortality or illness among younger and unvaccinated individuals, insurance claims grew the most in the United States, India, and South Africa.

Aegon, a Dutch insurer that performs two-thirds of its business in the United States, reported $111 million in claims in the Americas in the third quarter, up from $31 million a year earlier.

Life insurance claims have also increased, according to US insurers MetLife and Prudential Financial. Old Mutual of South Africa burned up much of its pandemic resources to settle claims, and Munich Re increased its projection of Covid-19 life and health claims to 600 million euros in 2021 from 400 million euros.

Because life insurance contracts are designed to last a long time – frequently 20 years or more – premiums aren’t yet reflecting the chance that Covid-19-related deaths or long-term illness will be higher than previously projected. Premiums are also being held in check by industry competition.

Rising claims, according to actuaries, will eat into the capital set aside by insurers to assure solvency.

According to studies from the life insurance trade association LIMRA, the insured U.S. population died 12 per cent higher than usual during the pandemic’s initial “shock” period in 2020.

“For the insurance industry, that’s not huge because we have reserves,” said Marianne Purushotham, LIMRA’s chief actuary.

“We’re always trying to compare the new variant to the initial shock,” she said.

In 2020, the impact of the pandemic on insurers was lessened since most deaths because of the pandemic were among the elderly, who do not normally purchase life insurance.

Insurers, reinsurers, and specialist risk modeling organizations are looking to the future as the pandemic continues to surprise, with the Omicron variety currently dominating.

“We take into account the possibilities of more transmissible and less transmissible (variants),” Narges Dorratoltaj, a scientist at modeling firm AIR said.

“We cannot say specifically which path we are going to follow but we are trying to come up with the possible ranges to at least narrow down the possible outcomes.”

AIR is taking into account intermittent lockdowns around the world, as well as increased uncertainty about whether governments will continue to implement limitations in order to keep transmission rates low, as well as individuals’ willingness to respect them, according to Narges.

RMS said its new Covid-19 projection model allows for variants that indicate features of vaccination escape, such as Omicron, as well as mutations that could dodge vaccines.

Swiss Re, a reinsurer, claims that their pandemic model considers more than 20,000 potential scenarios. It has been continuously upgrading its risk model with the most up-to-date information on testing, vaccination, infection, hospitalization, and death rates.

(Adapted from

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