Everyone has wanted to know about the likely future impact of the pandemic because of worries about their own health as well as societal and economic health. But there’s one group of people particularly interested: holders of mortality risk, such as life insurance companies and life contingent structured settlement investors. They wanted to know whether the Covid-19 pandemic would be so severe that mortality rates would spike high enough to bankrupt their operations.
It didn’t turn out that way, fortunately. And Matthew Edwards, Proposition/Innovation Lead, UKI Life at consulting firm Willis Towers Watson, says that even though the past two years have been awful from a mortality perspective, the future is going to be a great deal more normal.
But the pandemic has led to many side-effects that risk holders will need to model, as ‘more normal’ does not mean ‘back to the old normal’.
Statisticians love comparisons. And for analysts – actuaries, mainly – attempting to decipher the full extent of the fallout from the Covid-19 pandemic, comparisons with the 1918 Influenza pandemic and the subsequent improvement in mortality in the decades after would seem a good place to start. Unfortunately, this is one comparison which is less helpful.
“The reason that the improvements in mortality were so impressive in the 1920’s and 30’s was because there were so many amazing things happening generally in public hygiene and improvements in personal lifestyle. Then we had antibiotics kicking in the 1940’s and 50’s. These were dramatic reasons why we observed improving mortality in the decades after the Spanish influenza pandemic. It does not mean we should expect the same post-Covid,” said Edwards.
So, when it comes to understanding the effects of Covid-19 on mortality, what is helpful for actuaries– and, consequently, holders of mortality risk? Many commentators now say that we’re now in the endemic phase of Covid-19. Whilst the World Health Organisation hasn’t formally declared that to be the case, when that state does arrive, the life risk industry needs to factor in the ‘new normal’.
“One of the biggest things is endemic Covid-19. We’re always going to be in a world of Covid-19 of some sort, with new variants emerging and vaccines, to some extent, waning. We also have to think about the non-vaccinated portion of the population and put all those together, adjusting for country specific and socioeconomic profiles,” said Edwards. “We think it’s likely to be of the order of magnitude of another seasonal flu or half a seasonal flu on top of normal seasonal flu, so it’s not 2020 all over again, but it is material.”
Other factors for actuaries to consider in their modelling going forward include delayed diagnoses for many conditions, in particular cancer.
“The CDC in the United States said 4 in 10 US adults had been avoiding health treatment due to their own concerns and worries about Covid-19. In the U.K., waiting lists for the NHS are now around 10 million, up from 6 million before the pandemic. While neither of these will have a massive mortality impact because they are generally not about mortality-critical conditions, it does mean tens of thousands more cancer deaths in the next few years than would otherwise have occurred. Whilst not a game changer for the risk holders, it is a material number.”
Some of the health-related consequences of Covid-19 are, strangely enough, positive. There is a short-term ‘mortality displacement’ effect whereby the survivor pool should be, all other things equal, slightly healthier because the victims of Covid-19 were disproportionately those with serious comorbidities: this would reduce future mortality slightly. However, the effect is not likely to be large compared with many of the other changing elements to be considered.
It could be that a non-health related impact of the pandemic is the real driver of changes in mortality modelling. Data from the World Bank shows that GDP growth in 2020 was -3.3%. Developed economies such as the U.K. suffered a drop of -9.4%; the United States -3.4%; Germany and Japan -4.6%; France -7.9%. For Edwards, the impact of this on mortality risk holders could be the main driver of changes in mortality.
“We’ve all taken for granted economic growth which feeds into improved healthcare and personal lifestyles; we were used to mortality improving by 2-3% most years. But the economic mortality hit – the impact on mortality improvements over the next five to ten years is going to be very noticeable. We are in new waters now.”
