Implications for life insurers as elevated excess mortality rates continue

• Swiss Re Report suggests potential of up to 3% for the US by 2033 and 2.5% in the UK, the longest period of elevated peacetime excess mortality in the US
• Key driver of excess mortality is the lingering impact of COVID-19; both as a direct cause of death, and as a contributor to cardiovascular mortality
• Reducing the impact of COVID-19 on elderly and vulnerable populations will be key to excess mortality returning to zero

Four years after the peak of the COVID-19 pandemic, many countries are still reporting elevated all-cause excess mortality compared with pre-pandemic levels.

Swiss Re Institute's report The future of excess mortality after COVID-19, argues that the ongoing impact of the disease must be curtailed to prevent excess mortality rates 3% higher than pre-pandemic levels in the general US population and 2.5% in the UK, by 2033.

Excess mortality is a measure of the number of deaths above an expected level in a given population. Typically, all-cause excess mortality should be around zero, as the major causes of death remain relatively stable over the long-term baseline assumption.

In Australia, Actuary Institute figures show the excess mortality rate has dropped substantially since 2023, however, it remains significantly higher than the 1-2% excess observed in years of high flu deaths prior to the pandemic.  

Julien Descombes, Swiss Re Chief Underwriting Officer Life & Health Reinsurance says COVID-19 and excess mortality are much lower than seen during the peak of the pandemic.

"However, adverse impacts through the emergence of more virulent and/or lethal variants cannot be ruled out," he says.

"In this endemic state of COVID-19, it is expected that insured individuals will likely have a combination of vaccine and infection derived immunity, which in turn may result in fewer reports of post-COVID effects. 

"As an industry we should continue to monitor this landscape for developments," Descombes says.

Ongoing deaths from Covid

Paul Murray, CEO L&H Reinsurance at Swiss Re believes COVID-19 is "far from over".

He says the US reported an average of 1500 COVID-19 deaths a week for 2023 — comparable to fentanyl or firearm deaths.

“If this continues, our analysis suggests a potential scenario of elevated excess mortality extending over the next decade,” he says.

Murray adds that given the right circumstances, excess mortality could return to pre-pandemic levels much sooner.

“The first step is to get COVID under control, with measures such as vaccinations for the vulnerable,” he says.

“Over the longer term, medical advancements, a return to regular healthcare services, and the adoption of healthier lifestyle choices will be key."

Should there be a more stable shift in the major causes of death over the long-term horizon, coupled with lifestyle alterations in the years since the peak of the pandemic, Descombes says closer scrutiny could be required and insurers may need to adapt their underwriting or review their mortality assumptions.

What will it take to revert to the baseline?

Fluctuations in excess mortality tend to be short-term, reflecting developments such as a large-scale medical breakthrough or the negative impact of a large epidemic. However, as society absorbs these events, excess mortality should revert to the baseline.

With COVID-19 this has not been the case and all-cause excess mortality is still above the pre-pandemic baseline. In 2021, excess mortality spiked to 23% above the 2019 baseline in the US, and 11% in the UK.

In 2023, as Swiss Re Institute's report estimates, , excess deaths remained significantly elevated in the range of 3–7% for the US, and 5–8% for the UK.

According to a report published earlier this year by Australia’s Actuaries Institute, there were 8,400 more deaths than predicted in 2023 in Australia had the pandemic not occurred — less than half of the almost 20,000 excess deaths estimated for 2022.

The steep decline in excess deaths in 2023 was primarily due to the number of people dying from COVID-19 falling to 4,600 in 2023 from 10,300 in 2022.  

When analysing the total excess mortality of 40 countries from 2020 to 2023, Australia’s excess mortality over the four-year period (5%) was low in comparison to the global average (11%).   

The optimistic scenario 

Swiss Re's report examines an optimistic scenario where excess mortality rates return to pre-pandemic levels as early as 2028.

On this point, Descombes highlights that positive mortality improvements have continued to flourish, and these are expected to offset some of the excess mortality challenges.

"Examples include the recent influx of weight loss injectables and promising targeted treatments in the cancer space such as personalised mRNA vaccines.

"As these continue to advance, insurers should assess and factor in the potential merits of these technologies in improving life and health outcomes." 

Murray points out that the interplay between COVID-19 and cardiovascular death rates is significant for excess mortality.

"The virus itself has a direct impact because it contributes to causes of death such as heart failure," he says. "Further, COVID-19 has had an indirect impact via the disruption to healthcare systems — a factor which emerged in the pandemic years.

"This disruption has led to a backlog of essential cardiac tests and surgeries, meaning that conditions such as hypertension have been underdiagnosed and therefore not treated."

Addressing the risks

Murray adds that excess mortality in the general population is an important indicator for insurers, as shifts in the major causes of death may require a reassessment of additional risk in their mortality portfolios.

“The current levels of excess mortality are of concern,” Murray says, “however, there are a range of tools available for insurers and reinsurers to manage this trend.”

Specific actions include adapting the underwriting philosophy, risk appetite, and mortality assumptions in pricing and reserving. Insurers can be proactive in targeting prevention programmes for policyholders, helping them in the joint effort to support longer, healthier lives.

The primary driving factors for both current and future excess mortality are respiratory diseases (including COVID-19 and influenza), with other causes being cardiovascular disease, cancer and metabolic illnesses. The cause of death split varies by a country's reporting mechanism.

Descombes states that insurers are expected to keep an eye on the evolution of COVID, with a continued emphasis on the value of vaccination in elderly and vulnerable groups.

"Newer vaccine formulations are designed to be effective against current variants and provide the strongest protection against severe disease in these groups," he says.

"Also, the pursuit and maintenance of good metabolic health in the population can only be beneficial in the long run for morbidity and all-cause mortality."

Protection gap

Meanwhile the life insurance protection gap continues to widen in western countries despite a slow but consistent growth in new business in most of those countries.

Back in 2021, Descombes anticipated a "significant increase in sales" for the years following the pandemic, given that agents and financial advisors could return to selling policies face-to-face, and that there would be greater employment stability than during lockdown times.

"However, moderate increases in sales only started in 2023," he says. "2022 was still very much dominated by COVID-19, extending longer than expected." 

The lower-than-expected sales growth post 2021 is attributed to the prevailing economic uncertainty and the threat of potential recessions particularly in the US and China.

"Broadly, a material increase in 'protection' sales has not been observed," Descombes says. "In certain countries such as China, there has even been a significant decline in protection product sales.

"On the other hand, in many East Asian countries, sales of life insurance related to savings and investment have increased, driven by rising interest rates, making savings and investment products more attractive."

Poor economic times

In China, poor economic conditions may also have partly spurred sales of savings and investment products, as Chinese consumers tend to save more when faced with economic uncertainty.

"In many Asian countries sales were also negatively impacted by the pandemic-driven retrenchment of sales agents, especially in China," Descombes says.  

Australia has faced some additional market-specific headwinds following the Hayne Royal Commission (2017-19), which exposed poor sales and customer service practices in the insurance industry.

In addition, regulatory reforms aimed at improving the sustainability of disability income insurance have also seen a reduction in sales. 

"While global gross written premiums for life insurance have been rising since 2023, and are expected to continue to grow, the number of life insurance policies in for example the US, has largely stagnated," Descombes observes.  

"The protection gap, particularly among younger individuals, remains substantial. As such, the life insurance industry needs to continue to raise awareness, improve affordability and enhance accessibility to address this issue."