Morbidity considerations in the time of COVID-19

By Mario St-Hilaire, FCIA, and Steve Turmel, FCIA, members of the CIA Committee on Life Insurance Financial Reporting

The impact of COVID-19 on morbidity experience is still unknown at this stage. However, here are some key considerations that relate to the assumption-setting process for morbidity in these unprecedented times. The morbidity assumption primarily encompasses the incidence rates for critical illness, health, disability, and long-term care products and the termination rates for disability and long-term care products.

• Insurers may observe an increase in incidence rates for short-term and long-term disability (LTD) products during the COVID-19 crisis. As the confinement period is extended, mental health issues could become more prevalent. Here are some examples of elements that could have an impact on the level of new claims and on benefits expected to be paid to insureds:
  • Frontline workers could become worn down.
  • A high level of stress could be felt by individuals that have to come back to work knowing that they are still at risk of contracting the virus.
  • The economic situation as well as the uncertainty that individuals may have regarding their employment status could impact realized claims.
  • People infected by COVID-19 could need medical treatments and hospitalization that could lead to increased incidence rates for short-term disability (STD) products.New preventive measures introduced by companies such as psychological assistance or telemedicine could have a beneficial impact on employees and limit the level of new claims. Organizations that have access to relevant information on a frequent and timely basis will have a more comprehensive view of the crisis and will be able to act more rapidly to combat challenges as they arise. Actuaries would be mindful of potential variations in incidence rates over the coming months and years.

• Termination rates for mental health disabilities could likely be impacted by COVID-19. The additional stress related to the pandemic and economic situation could lengthen the recovery time for these disabled insureds. The recovery rate for current disabled cases that benefit from in-person treatment (e.g., physiotherapy, massage therapy, etc.) may also be impacted. Confinement and social distancing measures complicate the access to these treatments which could slow down the recovery process in some situations. These measures may also impact the insurance company’s ability to monitor the recovery process of the individuals that are currently on claim. As with incidence rates, actuaries would be mindful of the potential impacts related to the COVID-19 crisis on termination rate assumptions for disability products, which may vary depending on the type of disability.
  
• It is not expected that COVID-19 will have a direct impact on critical illness (CI) incidence rates. But some have suggested that people severely affected by the virus may be more likely to develop certain critical illnesses in the future. This is still speculative at this point, but actuaries could keep that possibility in mind when they analyze the claim experience in the coming years. Also, individuals may delay seeing a doctor for serious health problems, because of their fear of contracting COVID-19 or because the health care system is overwhelmed, which could lead to cancer or other illnesses not being diagnosed at an early stage. While it may lower the number of claims during the pandemic, this situation could potentially have a negative impact on the post COVID-19 CI incidence experience.
  
• Actuaries would need to assess the impact of COVID-19 on the incurred but not reported/approved claim provision (IBNR) level and its release in the future (e.g., release over a longer period than usual). For example, the confinement and social distancing measures could slow down the approval process which could impact the settlement date of new claims, due to delays to provide required documents or delays related to the claim investigation process. Also, postponed surgeries could deteriorate the health condition of individuals over the long term and a higher proportion of disabled cases could extend beyond the STD coverage period which would impact the IBNR for LTD products. The lockdown could also lead to delays in getting access to a paramedical and actuaries may want to revise the IBNR for some benefits (e.g., preventive/routine dental care) but they would also consider the potential for larger claims shortly after the lockdown measures are relaxed.
  
• In Canada, similar to other countries, COVID-19 deaths mainly come from the elderly population, some of which have lost their autonomy. Using Quebec as an example, more than 80% of the COVID related deaths have been attributed to residents of nursing homes, long-term care, or other similar facilities. This unfortunate situation could have a direct impact on long-term care inforce blocks and companies could experience higher termination rates than expected during the pandemic.

Although there are more questions than answers at this point, these are a few considerations that actuaries would be encouraged to analyze and review as they assess the continued appropriateness of their morbidity assumption. 

CIA publications pertaining to the morbidity assumption

Actuaries are encouraged to review the following excerpts of these CIA publications:

• Paragraphs 2350.15 to 2350.18 that relate to insured life morbidity within subsection 2350 of the Standards of Practice.
• Section 8 of the Valuation of Group Life and Health Policy Liabilities educational note that provides information related to the setting of the morbidity assumption for group insurance.
• Section 5.2 (Morbidity Risk) of the Considerations for the Development of a Pandemic Scenario research paper.

This article originally appeared on the CIA COVID-19 Hub.