COVID-19 Impact on Insurance

COVID-19 impact on life and health insurance

Moore School professor Robert Hartwig discusses the pandemic's likely impact on life and health insurance products

As the coronavirus threatens health and upends daily life throughout the world, UofSC Today is turning to our faculty to help us make sense of it all. While no one can predict exactly what will happen in the coming weeks and months, our faculty can help us ask the right questions and put important context around emerging events.

Robert Hartwig is a clinical associate professor of finance in the university’s Moore School of Business and co-director of the school’s Risk and Uncertainty Management Center. Prior to joining the Darla Moore School of Business, he was president and economist for the Insurance Information Institute. 

To what extent could the COVID19 pandemic disrupt the status quo and threaten the viability of the life and health insurance industry?

COVID-19 mortality impacts are concentrated on the elderly and people with chronic medical conditions.  These are groups that life insurers already consider to be at higher risk from death. Based on the likely incremental impact on mortality associated with COVID-19 and this already at-risk population, any additional claims life insurers might experience will be easily managed from a financial perspective. Life insurers also maintain reinsurance coverage to limit the impact of excess mortality.

Health insurers will likely see elevated claim activity and higher costs. That said, the health insurance system likely to be the most impacted is Medicare, the federally operated health insurance system for Americans age 65 and over. Again, seniors are the most vulnerable population. Health insurers may decide or be required to waive co-pays and deductibles to be in compliance with new federal rules and regulations issued in the wake of the U.S. National Emergency Declaration. That said, it’s possible they will be reimbursed by the federal government for these costs. Currently, there is concern that the U.S. healthcare system could become overwhelmed with patients. While costly, private health insurers do have the resources to manage any surge in claims they may experience. 

Could the current pandemic become a game changer in terms of the overall structure of the insurance industry?

It’s unlikely that the current pandemic fundamentally restructures the insurance industry, at least in terms of property/liability and life insurance. For health insurers, the fact that millions of Americans lack any health insurance coverage at all and that, in general, there are cost barriers to accessing care will likely intensify the debate in the upcoming presidential election regarding single-payer systems, the Affordable Care Act and President Trump’s “repeal and replace” proposals.  For the time being, however, the administration has agreed to reimburse hospitals for COVID-19 treatment provided to uninsured individuals.

Will health and/or life insurance products become more expensive or change in substantive ways as a result of the COVID19 pandemic?

I would expect little impact on the price of life insurance, given current epidemiological projections for the COVID-19 epidemic. Health insurers could potentially see material increases in cost which may drive up prices in 2021 and beyond. That said, a very significant share of these costs could wind up in the federally financed Medicare system.

Given your broad understanding of the insurance industry, what factors in the current pandemic are you most paying attention to?

I am focusing on the following areas:

  •  Efforts by plaintiffs’ attorneys to stretch the definition of “physical damage” to include the presence of COVID-19. This is because business interruption insurance, in order to be triggered, requires actual physical damage to insured property from a covered cause of loss. 
  • The expansion of workers compensation benefits to health care workers and first responders who are quarantined for precautionary reasons.

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