Life insurers close some doors amid coronavirus pandemic

U.S. applicants looking for coverage are facing challenges from sales suspensions, price hikes, and coverage cutbacks

Life insurers close some doors amid coronavirus pandemic

A grey picture of the life-insurance industry is developing south of the border as some U.S. carriers start to introduce restrictions to their offerings in the face of challenges from the COVID-19 pandemic.

According to the Wall Street Journal, numerous Americans looking for life insurance coverage amid the outbreak are being turned away as certain insurers suspend sales of popular products, hike premiums, or scale back coverage and benefits.

Numerous firms, including Penn Mutual Life Insurance Co., have temporarily stopped selling life insurance to people 70 and older with poor health. Insurance-industry leaders have cited analyses showing older people with underlying medical problems have much higher mortality rates from the novel coronavirus compared to younger ones.

Citing a memo Penn Mutual issued to brokers in March, the Journal said the insurer expects “to revisit these and other changes as we gain better insight into the impact of the Covid-19 pandemic.”

Prudential, the largest life insurer in the U.S. by assets, has suspended sales of 30-year term-life policies, and reduced the interest it credits to certain universal life policies that combine savings and death benefits.

A raft of insurers – including AIG, Nationwide Mutual Insurance, Pacific Life Insurance, and Principal Financial Group – have also restricted the size of their guaranteed universal-life policies.

The COVID-19 outbreak has presented numerous challenges to insurers, with the widespread plunge in interest rates being the main impetus behind the changes in the U.S.

Given anemic yields in the bond markets, insurers have been struggling to gain enough returns from their investment portfolios to honour claims and still turn a profit. The majority of a life insurer’s general investment account is typically held in long-term bonds whose yields follow the 10-year U.S. Treasury, which has been mostly seeing its annual yield decline since its peak of nearly 16% in the 1980s, according to the Journal.

The yield dove in the aftermath of the 2008-09 financial crisis, going as low as 1.366% in 2016 before recovering to roughly 3% in 2018. A coronavirus-driven rush to safer assets coupled with concerns on central-bank rate cuts caused yields to plunge anew.

“[Insurers] see no end in sight and they are all rushing to react to that,” Mark Chandik, president of FDP Wealth Management, told the Journal.