COVID-19's Impact on the Insurance Industry

Has the COVID-19 Pandemic Impacted the Insurance Industry?

Simple answer: Yes. However, this is not a simple question to answer.

To understand the impact of COVID-19 on the insurance industry, one must look at all lines of insurance to include the workers’ compensation line.

The Insurance Information Institute (Triple I) has recently reported that the world’s 10 largest insurance markets are cumulatively expected to see their Gross Domestic Product (GDP) decrease by nearly seven percent in 2020 compared to 2019 because of COVID-19.

Impact of COVID-19 on the Insurance Industry

According to Triple I, GDP represents the value of the total goods and services an economy produces in a single year whereas premium is the price paid for an insurance policy. Beyond premiums, insurers also generate revenue through investment income.

“Premium growth is related to economic activity, and as of Q3 2020 GDP growth for the world’s 10 largest insurance markets is expected to decrease by –6.99 percent in 2020, compared to our previous estimate of -4.9 percent. COVID-19 and lower economic activity continue to hinder premium growth in property, workers compensation and auto, while a recent survey indicates that COVID-19 led to a reduction in life premium,” writes Dr. Michel Léonard, Vice President & Senior Economist, Triple-I, in his just-released Global Macro and Insurance Outlook: Q3 2020.

Léonard wrote that the final numbers on the extent of the pandemic and recession’s impact on the industry will not be fully understood until 2021-2022 and early indicators point to flat premium growth in 2020 across the world and to significant differences in how the pandemic, monetary policy and the recession are impacting carriers and insurance lines in the U.S. versus abroad. He noted in his outlook report that benchmark GDP forecasts for 2020 and 2021 have been worsening over the last three months pointing to a deeper and wider impact by COVID-19 on global GDP growth than initially forecasted at the pandemic’s onset.

Other observations by Léonard include: 

• COVID-19 and lower economic activity continue to hinder premium growth in property, workers’ compensation and auto, while a recent survey indicates that COVID-19 led to a reduction in life premium. 
• As of the third quarter of 2020, GDP growth for the world’s 10 largest insurance markets is expected to decrease by –6.99% in 2020, compared to our previous estimate of -4.9%.
• In a recent survey, about 33% of U.S. carriers now assume flat long-term benchmark rates, while 50% of carriers reported having changed, or are in the process of changing, their investment strategy. 
• The impact of structurally lower long-term interest rates on asset allocation is likely to be more significant for U.S. insurers than for their foreign counterparts for two reasons. 
• The negative impact on U.S. life carriers is likely to be more significant than on their advanced economy counterparts, but lower than on their emerging market counterparts. 
• Workers’ compensation differs greatly within and across countries. That said, carriers offering workers’ compensation-like coverages outside the U.S. are taking a comparable approach to their U.S. counterparts when it comes to linking COVID-19 infections to a worker’s workplace or occupation. 
• Both within the U.S. and globally, higher unemployment is reducing payrolls and premiums collected for workers’ compensation policies.

Triple I has also noted that other considerations to keep in mind includes the impact of the pandemic on workers compensation, particularly the shift in the burden of proof onto the employer for certain types of claimants (i.e. presumption) and the changing exposure from people working from home. Workers’ compensation saw five consecutive years through 2019 where that line of business posted an underwriting gain; that could change with COVID-19. Economic trends also play a role. Triple said that they assume that exposures roughly grow and shrink with the economy. If the recovery is slower or faster than projected, premium growth will be affected.

Other Impacts from COVID-19: Loss of Premium Dollars, Layoffs, and Furloughs of Claims Professionals

As COVID-19 spread and the economy shut down, many Americans faced being laid off or furloughed by their employers. Wall Street Journal has recently reported that more layoffs are on the horizon as businesses continue to respond to the impact of the pandemic on the U.S. economy. Some of the layoffs and furloughs will result in the permanent elimination of some jobs as businesses either reinvent themselves or determine that they do not need as large of a workforce as they did before the pandemic.

The Wall Street Journal has reported that millions of Americans have been jobless for several months, suggesting it will take a while for the U.S. economy to recover from the damage wrought this spring. The number who were unemployed between 15 and 26 weeks rose to 6.5 million in July, the highest reading for records that go back to 1948, according to the Labor Department. The number of Americans reporting themselves as unemployed because of permanent layoffs was about twice as high in July as in March, when the pandemic struck.

Insurance professional have not been immune to the layoffs and furloughs.

The pandemic has created two realities for workers’ compensation insurers to deal with – the drop in insurance coverage by businesses that have failed or reduced their workforce and layoffs throughout the industry. I personally know of many insurance professionals whose insurance company, third-party administrator, and utilization review company have laid them off due to the impact of COVID-19 related business interruption on their companies. The sad reality for many of these professionals is that their jobs are gone for good. Finding a new job for many of these insurance professionals has been and will continue to be challenging.

Issue Unique to Workers’ Compensation Insurance – Coverage or No Coverage and Presumption of Coverage

The coverage of losses under an auto or property insurance policy is usually clear cut. That is not true when it comes to the coverage of a loss (claim) under a workers’ compensation policy.

The loss under a workers’ compensation insurance policy must arise in the course and scope of the employee’s employment. As to the coverage of COVID-19, the injured employee must demonstrate that the exposure to a disease must have occurred by reason of employment, is causally related to the industry or occupation, and that there is a substantially greater incidence of the disease in that industry or occupation than in the general population.

A workers’ compensation insurer must cover COVID-19 claims in instances where the employee was exposed to the virus as the result of the course and scope of their duties. An employee who contracts COVID-19 at a social function not related to work or while going about their daily activities outside of the workplace is not covered by their employer’s workers’ compensation policy.

The question on how to handle claims from essential workers such as firefighters, police officers, physicians, nurses, and grocery clerks has given rise to coverage issues and questions. These individuals have an increased risk of contracting COVID-19 on the job because they regularly interact with people who are or may be infected with the coronavirus.

With that reality in mind, 33 states either have laws or executive orders that extend workers’ compensation coverage to certain workers infected with the coronavirus or legislation pending to extend benefits. Most of the laws and executive orders regarding the presumption of coverage of COVID-19 for specific workers establish a “rebuttable presumption of coverage.”

The National Council on Compensation Insurance has published a document that provides an overview of federal and state activity regarding legislation and/or orders that provide for COVID-19 workers’ compensation presumptions. The document can be viewed here.

More states are likely to consider extending workers’ compensation benefit for COVID-19 to specific workers in the future. In fact, during the course of Day 3 of the Insurance Council of Texas’ virtual workers’ compensation conference on September 24, both Commissioner of Workers’ Compensation Cassie Brown and Injured Employee Counsel Jessica Barta reported that they are aware of discussions by first responders to seek legislation to provide for a rebuttable COVID-19 coverage presumption for Texas first responders. That is no surprise given the expansion of coverage of Cancer in several states around the nation and in Texas.

Drilling Down to the Workers’ Compensation Line of Insurance

Drilling down to the workers’ compensation line of insurance, more bad news is on the horizon for this important line of insurance.

More job losses and unemployment are on the horizon. According to the Daily Mail, MGM Resorts is laying off 18,000 workers who had been on furlough since March, this equates to the termination of a quarter of its pre-pandemic workforce. The hospitality industry is also facing more layoffs. Nearly 75 percent of hotels are expecting more layoffs before the end of the year. Meanwhile, The Points Guy and MSN are reporting that American Airlines will lay off 19,000 workers when their federal aid ends.

With more layoffs by large corporations coming, the number of employees covered by workers’ compensation insurance will continue to shrink and impact the workers’ compensation line of insurance.

The Future of Insurance and COVID-19

The future of the insurance industry and COVID-19 is of concern to many insurance industry leaders.

What does the future hold?

We will likely see continued business interruption impacting businesses around the world, worldwide litigation related to business interruption insurance, continued push by first responders for COVID-19 presumption legislation, a drop in the insurance industry’s investment income as the world’s stock markets dip when reacting to bad news related to the impact of the pandemic on the world and national economies, more layoffs, the permanent loss of jobs and the resulting drop in total premium dollars, and more COVID-19 job related claims.

All lines of insurance will be impacted by these factors.

The future performance of the insurance industry is dependent on the recovery of the U.S. and world economy. The Hartford Business Journal has reported that the world's top developed economies are all officially in a recession. Some economists warn of the potential for a double-dip recession in which output falls again.

What happens next is far from certain.

By Steve Nichols

Steve Nichols, the president of Sentinel Governmental Affairs, is an accomplished government and public affairs professional with over 30 years of experience with workers' compensation issues and regulatory advocacy representing insurance companies and other organizations. Steve is a recognized thought leader on workers’ compensation and other insurance issues. He previously served as the manager of workers’ compensation services at the nation's largest state property and casualty insurance trade association – the Insurance Council of Texas (ICT) – where he served as an advocate for the insurance industry and a vibrant workers’ compensation system. He is a passionate champion of telemedicine. In Steve’s current role, he provides consultation, business development, and lobbying services to a wide range of business and organization within and outside of the insurance industry. Learn more about Steve by visiting his website at https://www.stevewnichols.com/.

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