Life insurance delivered on its promises as COVID-19 took an unexpected toll

When I joined the insurance industry, one of my first jobs was translating claim documents from Spanish to English following a devastating volcanic eruption in Colombia. I was young, inexperienced but keen to understand our industry. As I look back on this seminal career moment, it was my first clear realization of our purpose: To help people when a crisis hits.

Fast forward 30-plus years. As head of Swiss Re's US Life & Health business, I witnessed the first pandemic of my lifetime – a pandemic that continues, as nations like the United States and China experience a resurgence in infections.

The high volume of payments by life insurers and reinsurers since the World Health Organization (WHO) declared a pandemic in March 2020, in particular in the US, is a reminder of this ongoing tragedy's terrible toll. These payments have affected insurer and reinsurer earnings, but our role -- as a shock absorber during times of crisis -- serves an important purpose.

From a life insurance perspective, the pandemic's impact is measured by increased deaths that translate into claims. To date, the WHO documents more than 6 million deaths from COVID-19, though the true toll is far higher, with the UN health agency recently concluding that 14.9 million excess deaths weredirectly or indirectly linked to the pandemic in 2020-2021.

In the US, where I am based, excess mortality unfortunately has been higher than many other parts of the world, even though vaccines and treatments were broadly available. At the pandemic's outset, however, US mortality impacts were consistent with other countries. They hit older individuals and those with co-morbidities the hardest. When vaccines arrived in late 2020, there was great optimism that uptake and effectiveness would prove a winning combination in drastically reducing infections and lowering mortality rates. 

While vaccines did protect people against severe disease and death, the US vaccination rate began to diverge from that of many other developed nations early in 2021. Even today, some 10% of Americans over 65 are still not fully vaccinated, compared to 4% in the UK, and around 32% of Americans over 65 are without a booster, against just 9% in the UK.

This combination of relatively low vaccine uptake and the emergence of the deadly Delta variant was one of the pandemic's many unpredictable developments that left too many people vulnerable.

Estimated to be around twice as transmissible as the original virus by the US Centers for Disease Control and Prevention, Delta was also more likely to cause hospitalization, severe disease and death compared to previously circulating variants.

We found relative mortality, in some US regions and among working age groups, nearly doubled in the third quarter of 2021, moving through the South and other parts of the country into the final three months of the year, with the unvaccinated population most vulnerable to Delta's higher lethality. Some insurers experienced their highest claims to date in the third and fourth quarters of 2021. 

What also had not been anticipated in a pandemic originally strongly associated with mortality among the elderly was the substantial percentage of excess deaths among younger people in such a compressed period. Vaccine uptake did increase during this period. Unfortunately, for many it was too late.

While it was clear that relatively low vaccination rates for younger age groups increased risks to insurance portfolios, we had not expected Delta's combination of higher transmissibility and lethality to cause such a large spike in claims. Another factor also played a role: The insured population may have been more socially mobile than the general population as Delta rolled over the the US, resulting in this group's exposure to the virus as its members frequented restaurants, travelled or participated in large gatherings, Swiss Re research shows.

The upshot: These factors likely all conspired to produce higher mortality, resulting in a bigger impact on our portfolio than anticipated. The third quarter of 2021 saw high excess mortality in the working ages, where most insured exposure is found, resulting in the largest number of death claims in any one quarter for working-age adults.

When the Omicron variant emerged in the US in late 2021, it was initially believed to be much less concerning because of its reduced lethality. As things developed, however, Omicron’s increased transmissibility and ability to evade vaccines ultimately has resulted in similar excess mortality in the first three months of 2022 when compared to the final half of 2021.

People continue to ask, when and how will the COVID-19 pandemic end?  We already know there's no hard and fast way to reach an endemic state. It's certainly no time to revert to a pre-pandemic mindset just yet.

While infections in many European countries have fallen from March peaks and numerous governments have lifted pandemic restrictions, new US infections are rising as subvariants of Omicron take hold. And in China, infection rates are near their highest levels, prompting restrictions in cities including Shanghai and Beijing as the country pursues a strict policy to contain the virus.

Globally, there are still some 400,000 new cases daily, according to WHO data from early May.

This global patchwork of developments makes it likely that individual countries will declare a state of endemicity before there is a broad global declaration that the pandemic is over.  It's too early to say we have defeated COVID-19, but data does show vaccines remain effective tools to help shield people from negative outcomes.

Prior infection has also proven to be protective against severe outcomes and the Delta and Omicron waves have infected a significant portion of the US population.  Consequently, it’s likely only a small percentage of the population, less than 10%, remains unvaccinated or uninfected.

Even so, evidence shows that people in this subset remains at risk of higher mortality going forward.  As has been demonstrated by inoculation campaigns during flu seasons, effective vaccines and boosters offer a safe, effective option to help reduce COVID-19 infections and limit the impact of future outbreaks on healthcare systems. Insurers also must remain vigilant. Viral variants may continue to prove more transmissible or lethal than their predecessors, potentially leading to renewed mortality waves that vary by time, region, and age.

Amidst the pandemic's devastating impact, our business did not experience massive operational interruptions and continued operating normally, despite unprecedented times. This is excellent news, because it shows we continue to be a strong partner in boosting societal resilience.

Moreover, the pandemic's impact on the insured population is a reminder for more discipline and research into the behaviour of groups of people with insurance coverage. Indeed, the long-standing belief that insured populations may be as risk averse as the average population, if not more risk averse, in some circumstances breaks down.

Going forward, we understand that regions will likely see uneven developments on the journey to endemic COVID-19. Nonetheless, we are heartened that excess mortality has declined since the first quarter of 2022, reinforcing our optimism that the worst of this pandemic for much of the world may be behind us.