https://insurancenewsnet.com/innarticle/excess-mortality-continuing-surge-causes-concerns
October 26, 2023 By Doug Bailey
Despite some signs that excess mortality rates are declining, life insurance executives and actuaries believe the numbers are alarming and could continue to drag earnings and surge death claims for years to come.
Excess mortality is the difference between the total number of deaths for a specific time period and the number that would have been expected. The numbers were naturally forecasted to climb during the pandemic, but some industry and health authorities are concerned the rates haven’t greatly diminished as COVID infection rates have declined.
Life insurers paid record levels of claims in 2021 as the pandemic drove mortality higher and the issue was widely cited in earnings reports as the drag on profits. In 2021, the most recent year for which data is available, the industry distributed a record $100.28 billion in total death benefits, according to BestLink. The higher-than-normal payouts began in 2020, the first year of the pandemic when insurers saw death benefits rise 15.4% , the biggest one-year increase since the 1918 Spanish Flu epidemic. The 2021 increase was 10.8%, but fell during the first nine months of 2022, from $74.27 billion in the same period in 2021. But that’s still higher than the $59.18 billion paid out during the same period in 2019 before the pandemic hit, according to BestLink.
Younger adult death rate up 20% in 2023
Others aren’t so sanguine and point to statistics from the U.S. Center of Disease Control that show mortality rates alarmingly rising for different categories. For example, younger adult mortality rates are up more than 20% in 2023, the CDC said. Cause of death data show increased cardiac mortality in all ages. And even as COVID-related causes declined in 2022, others rose, particularly stroke, diabetes, kidney and liver diseases.
“Consider the ripples of COVID-19 and its varying impacts, leading to higher rates of depression, suicide, and increased substance abuse,” said Samantha Chow, global leader for Life, Annuity and Benefits Sector at Capgemini, the giant multinational Paris-based consulting company. “This has set off a domino effect. From a life insurer's standpoint, and those dealing in retirement and long-term care solutions, there's a larger conversation at hand. Can the industry handle a sudden spike in claims? The surge in excess deaths caught carriers off guard, and our aging population is becoming more susceptible to illnesses or passing due to natural causes.”
Chow said there’s a real question of whether the insurance industry can sustain the enormous payouts the excess mortality rates will dictate.
“The real concern for life insurers lies in preparing for an unexpected wave of death claims and the impact on their assets under management,” she said. “Do they have enough reserves to weather these outflows, given the excess deaths? It's not just about death or health. It is about the industry's ability and readiness to manage this monumental outflow.”
Capgemini just published its World Life Insurance Report that revealed the upcoming largest inter-generational wealth transfer in history that is expected to cause a massive outflow of nearly 40% of life insurers’ assets under management (AUM), totaling $7.8 trillion, by 2040.
“When we factor in the rise of payouts on death claims, the magnitude of the situation demands urgent attention by the industry,” the report said.