Insurance in the Age of COVID-19

Delwin Graham & Jeff Haggerty - Jul 28, 2020
People are concerned about their present coverage and about whether they will be covered in the future.

Edited transcript from “Let’s Talk About … Insurance in the Age of COVID-19”, Delwin Graham and Jeff Haggerty, https://youtu.be/Vo0CgR2PknE, July 20, 2020.

DEL: Hello. My name is Delwin Graham. I'm a portfolio manager and partner with Graham Wealth Partners, which is a part of Canaccord Genuity Wealth Management.

Today, I'm joined by Jeff Haggerty, who is the financial planner and the estate planner for Graham Wealth Partners. We will be talking about the effects of COVID-19 on the insurance industry. The conversation will be of a general nature and is not meant to provide any specific advice. Any kind of recommendation, be it about insurance or investment, must be made with the specific circumstances of the individual in mind. For specific advice, please contact us at www.grahamwealth.com/contact-us.

The recent COVID-19 pandemic has turned all of our lives upside down, both our personal and work lives. Of course, the hardest hit has been those who have become sick or are caring for those who have become sick. Some have died. Others have lost their jobs or are working from home – for how long, nobody knows.

Because it is a contagion that kills and disables people, as well as bankrupting businesses, COVID-19 has also turned the Insurance Industry upside down. People are concerned about their present coverage and about whether they will be covered in the future.

To this point, I’ve asked Jeff Haggerty to join us to talk about the future of insurance in the age of COVID-19.

First, Jeff, as a way of introduction can you tell us a bit about your role and how you fit in with the team at Graham Wealth Partners?

JEFF: Thanks, Del. First of all, just a bit of background about myself. I've worked for Del's team for the last five years or so in a financial planning specialist role, as well as an insurance specialist role. So on the financial planning side, we look at creating comprehensive plans for clients who are looking at things like retirement income planning, insurance planning, estate planning, business succession planning, tax planning, etcetera. And then with that, we obviously look at how to mitigate risk or help with that client's estate through things like life insurance, accident and sickness insurance, or living benefits.

DEL: I do want to talk about how COVID-19 has affected the insurance industry. I know that its effects are worrying my clients – especially about their present coverage and the possibility of coverage in the future. Perhaps you could start with COVID-19’s effects in the short term - specifically, how the pandemic has affected the industry so far.

JEFF: Thanks Del. What I'm going to talk about today is COVID-19's impact on the life‑insurance and living-benefits-insurance industry. I'm not going to talk about its impact on other types of insurance such as automobile insurance or business interruption insurance. Obviously, it has had an impact on businesses – a lot of them being non-operational for quite a long period of time. Maybe permanently.

But in considering life insurance, the initial concern would be existing policies – will they be affected? Unless your policy had a specific exclusion preventing a payout as a result of a coronavirus, which would be extremely unlikely, then your existing policy would pay out in the event you contracted coronavirus and died. Of course, it wouldn't pay out to you, it would pay out to your estate or to your beneficiaries. So that being said, your current policies should not be impacted by this pandemic.

But what about future policies? I can say for the short term, insurance premium rates do not seem to have been impacted by the coronavirus. The way premiums are calculated is based on actuarial tables. Actuaries look at the overall life expectancies of, say, a male or a female within Canada who is either a smoker or a non-smoker, and they price your policy accordingly and according to your present health. Based on those actuarial tables, it's too early to tell whether the coronavirus will actually impact the overall life expectancies of individuals. There would have to be sort of an extreme number of cases where younger people were passing away as a result of this.

So currently, no changes to premiums, and I don't really see an impact to future changes to premiums unless it really impacts the mortality tables. Now, in my personal opinion, I don't think it will. But again, we don't know where this virus is going. We all hope that we eventually get a vaccine, but no one knows when we will be able to put the coronavirus under wraps.

DEL: Well, what about the case of disability insurance? To the extent that COVID-19 is a respiratory disease, I imagine there will be long-term effects from COVID-19. Are you finding that it's affecting the disability market?

JEFF: Great question – how will COVID-19 impact someone's health in the future and will it debilitate them? There is a distinction to be made here between short-term and long-term disability. Each has a different kind of contract. Long-term disability pays out after a certain elimination period and the most common being 90 days. We are only in the fourth month of this pandemic. And so, policy holders are only recently able to make a claim for long-term disability. From what we are seeing, there doesn’t seem to be long-term effects of COVID-19. However, these are early days. It might create lung issues that are currently unknown. It might also create other long-term physical issues, and we may see long-term disability claims starting to crop up. And if that's the case, then definitely insurance carriers would look at that and want to increase future premium rates.

Taking a look at your current disability policy – unless there is an exclusion based on coronavirus (highly unlikely), then your disability policy should pay out in the event of a disability claim. That being said, however, we don’t know how the coronavirus is going to impact underwriting future disability policies. Once again, it’s too early to tell. If we get this coronavirus figured out, and there's a vaccine, and we don't see any long-term impact on health issues, then I don’t see an impact on underwriting future disability policies. But if we start seeing long-term impacts to a person's health, where all of a sudden disability claims are going up dramatically, then definitely it would impact future disability rates.

DEL: And what about critical illness? I know this is starting to become a bit technical, and so maybe you could explain the difference between critical illness and long-term disability. But what about critical illness?

JEFF: Long-term disability is tied to income – it's your ability to earn income in the event that you become disabled or are unable to earn that income. You receive a percentage of your monthly income for the period of time you can't work. Critical illness is not tied to income, and it's a lump-sum benefit that's payable in the event you get one of the major illnesses defined within the contract. Those critical illnesses typically include the big three – heart attack, life-threatening cancer, and stroke.

Coronavirus is typically not one of those covered illnesses, so you wouldn't be able to claim in the event that you've got COVID-19. And so, it's not going to impact existing policies. Of course, if COVID-19 is linked to cancers, heart attacks, or strokes, and you develop one of those diseases, then you could receive your lump-sum benefit after surviving that illness over a number of days. But as in the case of disability insurance, it is too early to see a link between the coronavirus and how it impacts future critical‑illness claims and premiums as a result.

DEL: Thanks Jeff for that overview. I will highlight a few points.

First, COVID-19 has impacted the way that we do business in general, and the insurance business is no exception. Face-to-face meetings have been replaced by Zoom meetings; electronic signatures are much more acceptable now.

But insurance will continue to protect us – even in the face of COVID-19. At the moment, the coronavirus looks to have a minimal impact on life insurance, as it disproportionately effects an older population. The effects of COVID-19 on disability insurance and critical illness will be bourne out in the future when we determine the long-term effects of surviving the disease. For that, we can only wait and see.

Keep in mind that this conversation on COVID-19 and the future of insurance must be done at a very general level. Insurance is sold on an individual level where it used to cover off specific risks, like the risk of dying prematurely and leaving your family in the lurch.

If you have any question about the effect of the pandemic on insurance in general, or if you would like to know how insurance can be used to cover off specific risks in your life, like premature death or long-term disability due to COVID-19, please contact us at www.grahamwealth.com/contact-us. Thanks and take care.