COVID-19 has affected all industries and has spurred major — and immediate — need for change. Since we are facing a global pandemic impacting the lives of millions, pressure on the life insurance industry is significant.
Coronavirus has caused a large hit for life insurer stocks, due to the fact that the market expects a drop in interest rates to hurt insurers’ profit margins — but not, as you might think, because of an expected increase in mortality. It would take a much higher percentage of the population contracting the virus to drive major worry from a claims standpoint.
Despite the challenges, life insurance is still a key industry and product in this difficult time. Companies across the entire industry will have to adapt to the changing and uncertain market. There has been a spike in consumer demand across the industry, and it’s only continuing to rise. Insurtechs are better suited to tackle immediate and rising demand now, but all insurers must remain agile and technology-forward in order to evolve alongside real-time market factors in this unprecedented time.
Traditional Insurers Hit Hardest
Life insurance stocks have fallen further than the overall market in the past week due to life insurance companies’ large investment portfolios. The regulatory environment and conservative nature of life insurance means that life insurers have heavy exposure to bonds, and, as yields drop on things like Treasury notes, this puts additional pressure on profitability.
Traditional life insurers are additionally facing concerns about the persistence of business, analyzing if people will continue paying their premiums if the economy turns or if they’ll reallocate those funds for more near-term needs. During the financial crisis of 2008 and 2009, life insurers saw a temporary dip in persistency for this same reason.
Insurtechs Step Up to the Plate
Insurtechs like Ethos have seen an uptick in applications during COVID-19 concerns, due in large part to the way insurtechs process applications. With everything online, insurtechs are able to respond to the increase in applications much faster than traditional providers. Customers don’t need to leave their home to get coverage, and there’s no need to meet with live agents or visit a doctor. You can also receive your actual coverage far more quickly than with a traditional life insurance provider. This is why legacy insurers are choosing to either provide their own tools or partner with a technology provider to navigate this tricky time as fast underwriting remains key.