COVID-19's Impact on Life Insurance: Are Insurers Writing Less Business?

The Impact of COVID-19 on Life Insurance Markets

COVID-19 has significantly altered various aspects of our lives, and the life insurance market is no exception. Stories about life insurers writing fewer policies due to the pandemic have circulated widely in both traditional and social media. While these stories are not entirely false, they often lack the necessary context to provide a complete understanding of the situation.

Interest Rates and Life Insurance

Life insurers' ability to fulfill their promises to policyholders depends on numerous factors, including interest rates and responsible underwriting and investment management, as explained by Triple-I chief economist Dr. Steven Weisbart. Many life insurance products calculate premiums based on the expectation that the insurer will earn sufficient interest from investments to help pay life insurance benefits. However, efforts to mitigate the recession caused by the pandemic have led to historically low interest rates, which have negatively impacted insurers' profitability.

Insurers' Response to Low Interest Rates

With their investments not performing as expected, life insurers have two main options: write less business or charge more for the business they write. Currently, insurers are exercising a combination of these options. As interest rates eventually rise, the profitable spread will return, leading to more liberal underwriting and potentially lower premiums. However, predicting when this might happen is challenging.

In conclusion, while COVID-19 has indeed influenced life insurers' business practices, it is primarily the historically low interest rates that have driven these changes. For readers considering life insurance, it is advisable to stay informed about market trends and compare multiple insurers to find the best coverage at the most competitive rates.