{"id":442,"date":"2020-05-19T13:21:52","date_gmt":"2020-05-19T13:21:52","guid":{"rendered":"https:\/\/diymakerhub.com\/?p=442"},"modified":"2024-05-31T21:22:05","modified_gmt":"2024-05-31T21:22:05","slug":"are-life-insurers-writing-less-business-because-of-covid-19","status":"publish","type":"post","link":"https:\/\/diymakerhub.com\/index.php\/2020\/05\/19\/are-life-insurers-writing-less-business-because-of-covid-19\/","title":{"rendered":"Are Life Insurers Writing Less Business Because of COVID-19?"},"content":{"rendered":"

COVID-19 has changed many aspects of our lives, so it isn\u2019t surprising
\nto see life insurance markets affected. But some stories create false impressions
\nthat should be corrected.<\/p>\n

The story that some life insurers are writing fewer policies \u201cbecause of COVID-19\u201d has gained traction in both traditional and social media. While not wrong, like other stories involving insurance and COVID-19<\/a>, it requires context to keep it from wandering off into urban legend territory.<\/p>\n

\u201cLife insurers\u2019 ability to keep their promises to policyholders
\ndepends on numerous factors,\u201d explains Triple-I chief economist Dr. Steven
\nWeisbart<\/a>. \u00a0\u201cAmong them are interest
\nrates and how responsibly insurers underwrite policies and manage their
\ninvestments.\u201d<\/p>\n

\n
\"\"
Dr. Steven Weisbart
Triple-I Chief Economist<\/figcaption><\/figure>\n<\/div>\n

Interest rates exceptionally low<\/strong><\/p>\n

What do interest rates have to do with life insurance? Many
\nproducts (whole and
\nuniversal life<\/a> and term life<\/a> for 20 years
\nor more) calculate premiums in the expectation that, during the life of the
\npolicy, the insurer will earn enough interest from its investments, net of
\ninvestment expenses and taxes, to help pay life insurance benefits. Many life
\ninsurance and annuity policies \u2013 especially those issued 10 or more years ago \u2013
\nguarantee to credit at least 3 percent per year.<\/p>\n

\u201cEfforts to stave off the recession spurred by attempts to \u2018flatten
\nthe curve\u2019 of infections and deaths caused by the virus have led to
\nhistorically low interest rates,\u201d Weisbart says. <\/p>\n

Gross long-term rates on the investment-grade corporate bonds life
\ninsurers primarily invest in had been 4 percent for most of the past decade and
\nplunged below 3 percent in August 2019. Since the onset of the pandemic, rates
\nhave fallen even further (see chart).<\/p>\n

\"\"<\/figure>\n

\u201cSo, life insurers \u2013 who planned to profit from the \u2018spread\u2019
\nbetween the interest they earned on their investments and the interest they
\ncredited on their policies \u2013 have lately struggled as this spread disappeared
\nand then reversed,\u201d Weisbart says.<\/p>\n

Options are limited<\/strong><\/p>\n

\u201cSo, that\u2019s it!\u201d I hear some of you say. \u201cIt\u2019s all about rich
\ninsurance companies protecting their profits!\u201d<\/p>\n

Businesses must make a profit to stay alive, and U.S. insurers \u2013 one
\nof the most heavily regulated and closely scrutinized businesses on the planet
\n\u2013 have the additional requirement to maintain substantial policyholder
\nsurplus<\/a> to ensure claims can be paid. Life insurers, in particular, are
\nrequired to maintain a special account \u2013 the interest maintenance reserve
\n(IMR).<\/p>\n

\u201cThe IMR is drawn down when net interest earnings are too low to
\nsupport claims \u2013 as is the case now,\u201d Weisbart says. \u201cIf it\u2019s exhausted, insurers
\ncan draw down surplus, but they can\u2019t draw too much because they\u2019re required to
\nkeep at least a minimum surplus to protect against adverse outcomes in all
\nother lines of business.\u201d<\/p>\n

\"\"<\/figure>\n

If their investments aren\u2019t performing as well as expected,
\ninsurers have two options: write less business or charge more for the business
\nthey write. <\/p>\n

Exercising a combination of these options is what life insurers
\nare doing now.<\/p>\n

\u201cWhen interest rates eventually rise, the profitable spread will
\nreturn,\u201d Weisbart says, and competition among insurers will likely lead to more
\nliberal underwriting and lower premiums. \u201cBut we can\u2019t predict with confidence
\nwhen that might happen.\u201d<\/p>\n

Until then, life insurers are tightening their criteria for issuing new policies and, in some cases, raising premiums so they can deliver what they\u2019ve promised their existing policyholders.<\/p>\n","protected":false},"excerpt":{"rendered":"

COVID-19 has changed many aspects of our lives, so it isn\u2019t surprising to see life […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[],"_links":{"self":[{"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/posts\/442"}],"collection":[{"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/comments?post=442"}],"version-history":[{"count":1,"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/posts\/442\/revisions"}],"predecessor-version":[{"id":443,"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/posts\/442\/revisions\/443"}],"wp:attachment":[{"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/media?parent=442"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/categories?post=442"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/diymakerhub.com\/index.php\/wp-json\/wp\/v2\/tags?post=442"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}