Overlooked exposures: emerging risk drivers for Life & Health insurers

Morbidity expectations underpin health insurance, while life and longevity insurance solutions are based on mortality forecasts. COVID-19 was a reminder, however, that morbidity and mortality forecasts alone may not suffice for L&H sector predictions of the future.

The graphic below shows the emerging risk signals and trends that we have cited in previous SONAR reports as having an impact on L&H insurance, positive and negative. For instance, developments in science and technology can lead to healthier and longer lives. Other factors, like habits leading to obesity or lifestyle drugs taken for non-medical reasons, may do the opposite. Some developments can have both positive and negative impacts.

Many emerging risks in L&H are unrelated to epidemiological or life-science developments. Other important risk drivers often not taken into account include the reliability of energy and clean water supplies. These become especially important when a well-functioning healthcare system is needed most: in times of crisis.

For example, heat waves are expected to occur more frequently as temperatures warm. People who work outside, those with pre-existing medical conditions, the elderly, children and pregnant women are most likely to suffer adverse health effects in high temperatures, especially if they do not have access to mitigation measures. To furnish these, healthcare facilities need energy to operate and for cooling. In addition, patients need water for rehydration. As the number of heat days increases, patient admissions tend to rise. This adds to stresses on healthcare systems including via drinking water and electricity supplies, the latter because thermal and hydropower facilities need water to function.

Actuarial insurance models predict morbidity and mortality based on historical health data, and under the assumption that healthcare systems are well functioning given adequate availability of water and power. However, if in the future water or power shortages curtail the operation of healthcare services, actual outcomes may deviate considerably from the expected, especially if disruption persists for longer time periods.

Many other risk drivers have been on our radar for some time, also. For example, as populations age, the number of people vulnerable to communicable diseases increases. At the same time, however, some key issues like antibiotic resistance or underinvestment in vaccines remain unresolved. Such risk factors can compound the risks the insurance industry is already exposed to, such as increased morbidity and mortality in the case of epidemics/pandemics.

Over the last 10 years, two long-term global trends are especially prominent: climate change and the destruction of nature. Both bring their own health-related hazards while simultaneously reinforcing one another. Human-wildlife interactions increase the risk for zoonotic diseases, which in turn may result in epidemics and pandemics. Meanwhile climate change can exacerbate the range or spread of diseases. This may expose populations to communicable diseases that they have not experienced before, impacting morbidity and mortality rates in unexpected ways.

Actuarial modelling should adapt to account for both the positive (eg, in the field of medical innovation) and negative factors that could influence morbidity and mortality trends. The L&H industry should look beyond the traditional focus of health-related data to address new risk drivers. For instance, climate change modelling or risk mitigation for infrastructure related business interruption are already topics in non-life insurance segments for decades. Such insights can help in the task ahead: having a fresh look at scenarios and how to adapt to the qualitative risk changes the world is going through.