The insurance industry isn’t one known for rapid change, but a global pandemic has a way of altering even the most steadfast of business currents. After two years, insurance companies are still adjusting to the evolving marketplace as COVID continues to shape the industry from shifting operational practices to new risk calculations affecting coverage and premiums.
Where it’s all going still comes down to who you talk to. In some cases, operations are returning to pre-2020 practices, which is reassuring to longstanding firms such as Little Rock-based Stephens Inc. that cater to a more established, conservative clientele.
“Stephens is a privately held, family-owned business founded in 1933,” said Tom Kane, director of life and health. “Prior to March 2020, we were not a remote workforce at all. March 2020 comes, and we did not know, not that anybody did, how long this was going to last, so we sent everybody home. Gave everybody VPN access and thought we’d be back by summer, right? We did not officially return to the office until last November.
“I think the biggest thing for us during that time was, we didn’t know how our people were going to react in that remote work environment, although we were pleased to see that they did exceptionally well.”
Kane said this high level of performance gave the company confidence to evolve into an alternative scheduling model. He said the compromise allows flexibility while still maintaining the company’s culture and meeting customer expectations.
“Our folks can be in the office, at minimum, three days a week and work from home two days, or they can come to the office full-time if they want,” he said. “We have a very unique, very strong culture that we are very proud of. One of our concerns was, how do you instill and maintain that type of culture in a remote workforce? When you hire new people into your organization, how do you build that culture when they’re not here? It’s difficult. I think that was the biggest challenge for us, and I think probably a lot of other organizations.”
Other insurance professionals said the shake-up was just what the industry needed, especially as it pertained to a long overdue catch-up with technology.
“COVID forced the very archaic life insurance business to rapidly accelerate its technology,” said Luke Ramsey, president of the ASA Group and Evolved Life Settlements in Little Rock. “I serve on the board for the National Association of Life Insurance Brokerage Firms, and my father served on the technology committee with that association 25 years ago. What we’ve been trying to bring about was some of the basics, such as electronic signatures and electronic applications, just to simplify the amount of paperwork.
“It took COVID to actually force insurance companies to embrace that and put it together, even though we’ve had that capability for 20-some years. It just never happened. People could buy a house with an electronic signature 10 years ago, but it has been happening just recently in the life insurance business.”
Andrew Meadors, CEO of Sunstar Insurance of Arkansas in Little Rock, echoed this sentiment, saying once technology became the preferred, safe way of conducting business, many firms began to build better, more efficient operational mousetraps.
“The pandemic forced us to come to certain realizations of things that we did not have to do that we thought we had to do,” he said. “That was, mainly, get on the plane and go see out-of-state clients at every renewal time. [During COVID] they did not want us to come, and we weren’t sure about going. So, it changed the whole dynamic there. We still want to do that maybe every other year, but we just don’t have to do it all the time.
“Also, the insurance agency business used to be very buttoned-down, like 8 o’clock, everyone’s at their desk ready to go. And that’s a laughable concept now. It’s still very important in our industry for new people to have a quick collaboration with industry veterans, so we would never be an all work-from-home agency, because we feel that client service suffers. But we’re a lot more flexible than we used to be.”
The relative calm with which insurance professionals today speak of the events of 2020 belies the near-death experience the industry as whole experienced during that time. In a September 2021 commentary for PropertyCasualty360.com, John Head, Wes Robinson and Bill Wilkinson laid out in no uncertain terms the catastrophic events the industry narrowly averted.
“The impact of COVID-19 on the insurance industry could have been devastating if pandemic coverage had been applied,” they wrote. “According to the insurance trade group American Property Casualty Insurance Association, the estimated costs from the resulting pandemic-related mandated business closures, in terms of loss of income, would have been anywhere between $251 billion and $450 billion a month, which, if paid, would have rendered the insurance industry insolvent.”
For context, 9/11 generated $40 billion in total, or 10 percent of insurers’ combined surplus, per the article. Even then, the authors noted, many companies balked at the price tag of claims, fearing the impact on the industry’s stability. Ultimately, the federal Terrorism Risk Insurance Act was invoked to share the burden of claims between the government and insurance carriers.
Policyholders have taken their carriers to court for refusing to pay on the grounds of the pandemic. But thus far, few plaintiffs have won their challenge, as the courts agreed with the view that business interruption policies were never intended to pay pandemic-specific claims. And in more bad news for policyholders, many carriers have yet to come up with a workable solution against future pandemics, save for inserting specific pandemic-exclusion language into their policies.
The life insurance industry has had its own challenges. A December 2021 article in the Wall Street Journal reported death benefit claims spiked higher than at any time since the 1918 influenza epidemic. Statistics by the American Council on Life Insurers showed a 15.4 percent surge in such claims in 2020 to $90.43 billion, mostly due to the pandemic. This has put a strain on existing claims systems, delaying payments and eroding customer confidence.
Along the way, many life insurance companies had to pivot as buying patterns shifted due to underwriting for certain population segments growing narrower on the basis of perceived higher risk. This hit The ASA Group, the oldest and largest brokerage firm in the state, where it hurt.
“During COVID, our older-age, high-net worth clients were restricted on the amount of coverage that they wanted to buy, and a lot of clients were not wanting to spend that much money every year anyway,” Ramsey said. “Meanwhile, every 25-year-old out there, all of a sudden, wanted insurance, so we saw a big surge in small face amounts, or middle-market mass affluent, which is the term we use in the industry. That mass affluent space really started buying a lot more policies.
“Well, we don’t do well in that space; it’s a place that we haven’t penetrated as a company. We’re tailored to the high-net worth individual, and we just weren’t seeing the insurance companies wanting to bite off all the risk because of the economic uncertainty.”
A few years ago, Ramsey launched Evolved Life Settlements, which sought to purchase life insurance policies and sell them to hedge funds. During COVID, people flocked to the company, selling off extra life insurance policies and squirrelling away the proceeds as a guard against future uncertainty.
“That business just exploded,” he said. “A lot of business owners and people who owned massive amounts of property for rent were concerned their renters were going to be going out of business. They saw a policy that maybe had no cash value, but they could sell that policy for a tax-favored lump sum today which would give them a bankroll to carry through the pandemic.”
Health insurance is also continuing to grapple with the changing landscape, as COVID has already begun to be factored into health underwriting tables, affecting the cost of individual and group coverages.
“There’s an immediate effect, and there’s a longer-term effect which we don’t know the end of yet,” said Pete Edgmon, underwriting consultant for life and health at Stephens Inc. “The way the Delta variant was so significant was, we had the severity of those diagnosed going into hospitalizations, and hospitalizations result in long-term inpatient stays, multiple morbidities, comorbidities. Long story short, very high-cost claimants.
“Beginning mid- to late-summer 2021, I’d see two of every 10 high-cost claimants per employer were there as a result of a COVID-19 primary diagnosis. I hadn’t seen that up until that point. Fast forward to March 2022, and major carriers were increasing their pooling charges, meaning reinsurance rates built within a fully insured premium, by 3 to 4 percent. Bottom line, your fully insured premiums have now gone up, generally speaking, 1 and a half to 2 percent, just as a result of high-cost claimants due to COVID-19.
“The big question here, the $50 billion question, is whether or not those get adjusted back down once we get later into 2022 and the incidents of the high-cost claimants as a result of COVID-19 are not as numerous.”
Employers are under even more pressure to absorb the added cost of health insurance for their workers. Given the tight labor supply, benefits packages become a key bargaining chip for attracting and retaining good help. The company that passes along too much cost to the employee, or otherwise falls short of their expectations, is likely to lose them to a competitor next door.
Randy Rogers of Gallagher Insurance in Little Rock said this is driving certain trends within the benefits marketplace, issues that only compound the factors that underwriters looked at prior to 2020, from chronic health conditions to the high cost of medications.
“We’ve seen employers wanting to make sure that they’re offering very competitive, well-rounded benefit packages compared to their competitors,” he said. “Mental health is most definitely something we’ve seen an uptick in, both in conversations around and claims around that particular topic. Employee assistance programs have become increasingly more important for employers to provide their employees as a result.
“We’ve also seen more choice across the board. In 2019 in Arkansas, 28 percent of employers, based on our statistics, offered only one health plan. By 2021, we were down to 23 percent that only offered one. People want more and more choices, not only in health plans but in what we call supplemental benefits such as covering accidents or cancer.”
Even as the COVID factor becomes more normalized within the insurance industry, there’s still the occasional twist that gets a person’s attention. As Meadors notes, one of these complications factoring into the life insurance business is fairly dripping with irony.
“Everyone was thankful when the vaccines came out to help us get through this pandemic. However, there’s been more problems resulting from vaccination injuries, which people are now coming to grips with,” he said. “Blood clots, heart attacks, strokes, sudden death. Those things are being factored into the life-insurance actuary tables going forward. Furthermore, there are some states that are changing workers compensation laws. If your company forced the vaccine on you to keep your job and your body breaks down or you have some major problem, that’s compensable as a workers compensation claim.
“I’m not trying to sound the alarm that this stuff is widespread or prevalent, but there’s risk to these vaccines and these boosters, which doctors and cardiologists are now starting to admit. People need to understand there’s risk with whatever you do, and for those who want to keep taking these boosters whenever they say to go take them, they need to assess that. The benefit has to outweigh that risk.”