Best’s Special Report: With Spiking Mortality Rates Come Sharp Increase in Life Insurers’ Paid Death Benefits

OLDWICK, N.J.--(BUSINESS WIRE)--Analysis by AM Best shows U.S. life insurance companies’ paid death benefits increased dramatically over the past two years, with the average amount of claims in 2020-2021 up 37.9% compared with the previous eight years.

In its Best’s Special Report, “Mortality Risk Worsening Due to COVID-19,” AM Best states that COVID-19 was the main reason for the rise in claims, but notes that many companies also have stated that delays or the unavailability of medical care as a result of pandemic-related lockdowns also increased non-COVID-19-related deaths compared with pre-pandemic baselines. Additionally, societal-related issues, such as the resurgence of substance abuse, also contributed to the increase in death claims.

The research shows that severity of impact on insurers depends largely on where they operate. Despite the surging life claims, just 20 states exceeded the average national percentage increase of 37.9%. However, according to the report, more than 55% of death benefits paid in 2021 originated from those states. Minnesota, North Dakota and Texas saw increases of higher than 50% in 2020-2021 over the previous eight years. Regionally, the South (42.6%) and the Midwest (41.3%) reported the largest increases; New England (29.4%) and the Pacific Northwest (31.5%) fared better.

“While the number of deaths has increased to the point that average U.S. life expectancy has been dropped by nearly two years, new business strain from record-setting premium growth in 2019 to 2021, also driven by the pandemic, has had a bigger impact on life insurers’ earnings than the increase in mortality,” said Jason Hopper, associate director, industry research and analytics, AM Best.

The report notes that deaths among younger age groups also was a driver of higher paid death benefits. Older populations, which accounted for a greater number of deaths initially in the pandemic, typically do not have higher face amount term life policies. Even a smaller number of deaths at younger ages with less premium in reserves could potentially have a larger impact on earnings. Additionally, mortality in the group life segment began to rise in the third quarter of 2021, as the incidence of COVID-19 deaths moved into the working-age population. Although death claims are likely to be lower in 2022 compared with 2021, the level still is likely to be elevated compared with pre-pandemic norms.

“Insurers can reprice new policies to better account for the additional COVID-19 mortality risk,” said Erik Miller, director, AM Best. “We have also seen stress-testing scenarios that assume mortality spikes every five years, reflecting the potential increase in frequency of such events. Proactive mortality risk management, which requires revising mortality assumptions to make timely decisions in reserves and forecasting, can help insurers better position themselves against the next unforeseen shock event.”

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=321412.

For a video discussion about this special report, please go to http://www.ambest.com/v.asp?v=ambmortalityrisk622.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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