Did COVID‐19 change life insurance offerings?

• Published date: 01 December 2021
• Author: Timothy F. Harris,Aaron Yelowitz,Charles Courtemanche
• Date: 01 December 2021
• DOI: http://doi.org/10.1111/jori.12344

J Risk Insur. 2021;88:831–861. wileyonlinelibrary.com/journal/JORI

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831

Received: 25 November 2020

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Revised: 11 March 2021

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Accepted: 1 May 2021

DOI: 10.1111/jori.12344

ORIGINAL ARTICLE

Did COVID‐19 change life insurance offerings?

Timothy F. Harris

1

|Aaron Yelowitz

2

|Charles Courtemanche

2

1

Department of Economics, Illinois State

University, Normal, Illinois, USA

2

Department of Economics, Gatton

College of Business and Economics,

University of Kentucky, Lexington,

Kentucky, USA

Correspondence

Aaron Yelowitz, Department of

Economics, Gatton College of Business

and Economics, University of Kentucky,

550 South Limestone St, Lexington, KY

40506, USA.

Email: aaron@uky.edu

Abstract

The profitability of life insurance offerings is contingent

on accurate projections and pricing of mortality risk.

The COVID‐19 pandemic created significant uncertainty,

with dire mortality predictions from early forecasts

resulting in widespread government intervention and

greater individual precaution that reduced the projected

death toll. We analyze how life insurance companies

changed pricing and offerings in response to COVID‐19

using monthly data on term life insurance policies from

Compulife. We estimate event‐study models that exploit

well‐established variation in the COVID‐19 mortality

rate based on age and underlying health status. Despite

the increase in mortality risk and significant uncertainty,

the results generally indicate that life insurance compa-

nies did not increase premiums or decrease policy

offerings due to COVID‐19. Nonetheless, we find some

evidence that premiums differentially increased for in-

dividuals with very high risk and that some policies were

removed for the oldest of the old.

KEYWORDS

2019 novel coronavirus, COVID‐19, SARS‐CoV‐2, severe acute

respiratory syndrome 2, term life insurance

1|INTRODUCTION

Since the 2019 novel coronavirus (SARS‐CoV‐2) first emerged, there has been substantial

uncertainty regarding the magnitude of the increase in mortality risk. In March 2020, a highly

cited study from Imperial College (Ferguson et al., 2020) reported that uncontrolled spread of

© 2021 American Risk and Insurance Association

coronavirus in the United States could lead to 2.2 million fatalities, based on key assumptions

such as 80% of the population ultimately getting COVID‐19 and an infection fatality rate (IFR)

of 0.9%. The modeling led to widespread action by policymakers in the United States and other

countries to reduce transmission; within 3 days of the publication, California implemented the

first‐in‐the‐nation shelter‐in‐place order (Friedson et al., 2020), and most other states followed

quickly thereafter.

As of March 2021, the COVID‐19 death toll in the United States has been substantially

below this projection. The difference between the most pessimistic forecasts and actual fatal-

ities is likely due to changes in behavior—such as better handwashing, staying home more, and

wearing facemasks or social distancing when outside the home—that are partly voluntary and

partly induced by government suppression and mitigation policies (Courtemanche et al., 2020;

Hsiang et al., 2020; Lyu & Wehby, 2020). While the average IFR has been the subject of debate

in the literature due to different methods of accounting for undetected mild or asymptomatic

infections, most studies put it in the range of 0.5% to 1%—similar to the rate used by the

Imperial College report, and an order of magnitude deadlier than the flu (Abbott &

Douglas, 2020; Meyerowitz‐Katz & Merone, 2020).

The duration and magnitude of increased mortality risk from COVID‐19 are contingent on

many uncertain events, such as the availability and efficacy of vaccines (Corum et al., 2020), the

ability to implement technological innovations like pooled testing (Augenblick et al., 2020;

Mandavilli, 2020), at‐home testing, and contact tracing, and innovations in treating those who

contract COVID‐19 with therapeutics like Remdesivir (Beigel et al., 2020). In addition to these

factors, health messaging has been conflated with political considerations, contributing to more

uncertainty.

Underlying uncertainty about the direct and indirect effects of the virus, policy missteps,

incorrect forecasts, and uncertainty about longer‐run consequences all provide challenges for

the life insurance industry, which relies on accurate estimates of mortality risk. In this study,

we use monthly data on approximately 800,000 policies from 96 distinct companies listed on

Compulife, a key distributor of life insurance quotes, to analyze the influence of COVID‐19 on

both term life insurance pricing and policy offerings. One key prediction is that insurance

premiums should respond to exogenous changes in overall risk, which is precisely what hap-

pened due to COVID‐19. Such short‐run changes are well documented for automobile in-

surance, where reductions in driving and accident claims led to premium refunds early during

the pandemic (Scism, 2020).

To analyze the influence of increased mortality risk on life insurance premiums and

offerings, we exploit well‐known and widely accepted variation in mortality risks from

COVID‐19 originating from age and comorbidities.

1

Those with chronic conditions or

advanced age are far more likely than others to be hospitalized or die from the virus (CDC,

US Centers for Disease Control, and Prevention, 2020). Early evidence from mainland

China estimated IFR of 7.8% for those aged over 80 and over, 4.28% for those aged 70–79,

and 1.93% for those aged 60–69, compared to 0.03% for young adults aged 20–29 (Verity

et al., 2020). As a consequence, the direct health consequences of the virus (such as

through mortality) and indirect effects (such as through foregone preventative care,

mental health consequences, or rising obesity) are far more pronounced for older,

1

There also appear to be stark COVID‐19 disparities in the United States by race and ethnicity (Benitez et al., 2020; Selden & Berdahl, 2020), where the causes

are only partially explained by current economic, health, and transmission factors.

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HARRIS ET AL.