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Impact of COVID-19 In 2020: Life Application Underwriting Standstill


I remember my personal “Day Zero” for the pandemic was the day the NBA suspended its 2019-20 season indefinitely because of COVID-19. That was on March 12, 2020. Shortly after, on March 19, California became the first state to issue lockdown orders and other states soon followed. Quantum was considered an essential business in Arizona, so we continued working, partly remote and partly in the office.


The headlines back then all bore witness to the fact that in 2020, the majority of pandemic deaths were happening among older people. Adults 65 and older accounted for 16% of the US population but 80% of COVID-19 deaths in the US according to this article from July 2020.


Throughout much of 2020, in addition to being unable to watch my favorite sports or go anywhere, our work in the life insurance department at Quantum was also impacted dramatically, since our focus is on providing tax-advantaged permanent life insurance policies for retirement—meaning obviously, coverage for older people.


During March through December of 2020, Quantum ran into major life insurance medical underwriting standstills, as rising case counts, hospitalizations and death rate had a chilling effect. We found that most of our applications for life insurance for people age 60 or older were either postponed, declined or withdrawn by underwriting departments, closely following the trajectory of the coronavirus.


Life Application Underwriting Eases In 2021


Then, things slowly started to improve.


On December 14, 2020, as the US death toll topped 300,000, the first vaccine dose was administered in America, with the first vaccination rollout concentrating on health care workers, nursing home staffers, those with high-risk medical conditions as well as those 75 or older. By January of 2021, people age 65 or older could get vaccinated, by April 2021, everyone age 18+ was eligible.


By March of 2021, with almost 60% of people over age 60 vaccinated, things in the life insurance business got significantly better. Many insurance carriers published new underwriting guidelines taking us back to pre-2020 underwriting standards.


In fact, year-over-year activity in April 2021 was up over April 2020 by an impressive 10.7% as insurance companies began to underwrite the large segment of older Americans previously denied life insurance coverage for over a year under the temporary underwriting restrictions employed by carriers.


The Delta variant also changed the demographics. The Wall Street Journal noted that since the arrival of that mutation, the number of deaths of those above age 65 has declined to 69% of the total, with a big increase in fatalities among people ages 45 to 64. And medical science is still determining the impact of Omicron, which is four times as transmissible in its early stage as Delta.


Life Insurance Demand


By the middle of 2021, life insurance sales and premiums had grown in the aftermath of COVID, as demand increased as the value proposition of life insurance became apparent to consumers who had watched the news and faced the death of friends, acquaintances and family members. Since then, there have been few reactions in the life insurance industry to epidemic curves, other than a slight chill in July and August of 2021.


In fact, according to LIMRA, indexed universal life (IUL) new premium jumped 21% in the third quarter of 2021 with two-thirds of IUL carriers increasing their sales and all but one carrier reporting double-digit growth. In the first nine months of 2021, IUL premium increased 18%. IUL represented a quarter (26%) of all individual life premium in the third quarter.


Premium Costs


There were record life insurance payouts in 2020, over $90 billion in 2020, a 15.4% increase over 2019. That’s the largest year-over-year increase since the 1918 influenza pandemic. Higher payouts usually lead to higher premiums.


Increases in premiums may happen for more than just the older demographic, as insurance company actuaries, who have been keeping track of deaths and causes for hundreds of years, grapple with the statistics from 2021. Recently, OneAmerica, a $100 billion life insurance and retirement company, made headlines when they found that the Q3 & Q4 2021 death rate for people age 18-64 was up by a mind-boggling 40 percent.