The impact of the COVID-19 pandemic will be felt globally for decades to come. Whilst many organisations are now in rebuild mode and are looking to the future, we want to review the impact of the pandemic on our global insurance markets.
The United Kingdom, as one of the world’s largest financial centres, is the leader in the European life insurance industry. As of 2019, UK life insurance businesses had a market share of over 70 percent of the total UK insurance market, providing a wide range of insurance and financial investment products. Life insurance policies provide coverage in the event of the policy holder’s death, allowing them to leave money behind to help their beneficiaries. Annuities, on the other hand, are a regular payment scheme which grants the policy holder lifelong income upon retirement. Income protection ensures a policy holder’s income is covered in the event they suffer an injury or a terminal illness and cannot work. In 2020, the top three life insurers in Great Britain by number of plan owners were Legal & General, Aviva, and Scottish Widows.
When we look back over 2020 and 2021 and review the life insurance industry, it appears that whilst the pandemic did impact the market it didn’t necessarily have the negative impact that some feared. The pandemic resulted in the highest ever number of payments made to beneficiaries. In 2020, life insurance policies in the US paid out over $90 billion dollars, this was an increase of 15.4% over 2019. This increase was the largest year on year increase seen since the 1918 influenza pandemic.
However, matters could have been worse. As many of the COVID-19 victims were in fact older people, around 81% of deaths in 2020 were of people age 65 and older. It’s unknown, though, how many of those seniors had life insurance policies, and if they did have insurance policies, then their policies will have been generally smaller and therefore did not negatively impact life insurance companies in the same way it would have if younger people with big policies were to have been more greatly impacted. Furthermore, whilst insurers paid out more than before, the pandemic resulted in an increase in new business within this industry. The fears of the pandemic meant a record $3.3 trillion was bought in life insurance coverage in 2021 in the US. This was roughly 43.1 million policies. In the US, the fear of the pandemic meant life insurance coverage in the US stood at $20.4 trillion. This highlights that whilst the life insurance industry would have paid out more than we have ever seen for over 100 years, the pandemic also brought with it new business, with people taking out policies that previously hadn’t chosen to do so.
S&P Global Ratings stipulated back in December 2020, that the entire insurance industry had been hit by the pandemic. This could be seen through asset risks, reduced premium growth and volatility across capital markets. They expected most COVID-19 losses to be picked up by reinsurers so the technical performance of primary insurers would only marginally deteriorate, and that due to their riskier asset allocation, developing markets will have experienced more declines in equity returns than developed markets. However, developed markets would have shrunk in real terms due to the economic slowdown, and low interest rates signified performance of investments being the main source of risk to insurers. Highlighting the impact the pandemic had on some parts of the insurance industry.
If we look at the concentration of the UK life insurance market, it is lower than in many other European markets. In 2019 there were over 300 companies operating on the domestic UK insurance market, with the top ten British insurers making up almost three quarters of the total market. Additionally, the United Kingdom was ranked fifth in Europe by insurance density, with almost 3,600 U.S. dollars per capita – which means that if all UK citizens had life insurance, this is how much they would each be paying annually. It is predicted that the value life insurance gross written premiums in the UK will reach close to 200 billion British pounds over the next few years.
Despite the fact the market took a hit in some way shape or form over the course of 2020-2021, it is clear that the market has also seen a surge in new policies and has positively impacted the market and its rebuild mode.
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