Do insurers have COVID-19 covered?

What are the implications of COVID-19 for the insurance industry? And what longer-term trends might the outbreak serve to usher in for the future.

The Covid-19 coronavirus outbreak that began in China towards the end of last year has now become a global pandemic. Although it now appears to be slowing in China, the spread of the disease is accelerating elsewhere, with the World Health Organization recently describing Europe as its current `epicentre’. Governments are reacting in ever more dramatic ways, closing borders, imposing lockdowns and travel restrictions, shutting schools and colleges, and banning mass gatherings such as sporting events.

The way the crisis will run from here cannot be known. But alongside the tragic human toll, it is already having considerable economic impacts, posing major challenges to the global supply chain and certain business sectors such as airlines, travel and leisure, and causing significant stock market volatility and some precipitous falls. Central banks including the US Federal Reserve and the European Central Bank (ECB) have responded by cutting interest rates. The ECB has expanded its quantitative easing program to make more liquidity available and the Fed could follow suit after the US joined many other countries in declaring a `national emergency’.

A crisis such as Covid-19 affects all business sectors – but it especially puts a spotlight on insurers who can expect to be inundated with general inquiries and claims across multiple different lines, whether that be for health, life or non-life cover. Balancing the need for responding to this influx of activity in the contact centres with a quickly shifting remote workforce is an area that insurers are working to address. Of course, countries are at different stages of coronavirus activity.

So, how is the insurance industry likely to shape up to the unfolding crisis? What are the implications across the different segments of the industry? And what longer-term trends might the outbreak serve to usher in for the future?

Limited exposure for General Insurers?

Starting with non-life or general insurance first, I expect the impact on claims to be relatively manageable. Most insurers learned the lessons from the SARS outbreak of 2003 and introduced exclusion clauses for communicable diseases and epidemics/pandemics into most non-life products such as business interruption and travel insurance.

Business interruption policies usually pay out only if physical damage occurs to an organization’s assets or operations – so coronavirus related claims may not be covered, but there is potential for future disputes on this issue. Travel insurance, meanwhile, may offer cover if a customer is diagnosed with the virus before or during their trip – but not for travel that is cancelled because of the pandemic, unless a customer has taken out premium cover, which very few have. Of course, interest in premium policies could change in a world after COVID-19.

Event cancellations may cause greater losses to insurers as some large events (but certainly not all) have policies that may cover them even for epidemics or pandemics. The largest event taking place this year is the Tokyo Olympics where analysts estimate approximately $2bn of coverage.

It is likely that the reinsurance sector will bear some of the brunt here, as insurers claim back the costs of cover from them over a certain threshold. One major global reinsurer, for example, has been quoted as having exposure of over 500 million euros should all events covered for pandemics be cancelled.

However, there are two potentially big areas to watch for non-life. Firstly, trade credit insurance, covering businesses against debts that cannot be paid by their customers or suppliers. This is an $11bn global market – and if increasing numbers of companies go out of business due to coronavirus impacts, insurers could face rapidly spiralling claims. There are particular concerns that, alongside some big corporates in acutely affected sectors, SMEs in many markets could be hit hard due to supply chain disruption and a crunch in business levels. The cost of this may very much depend on just how bad the pandemic becomes, the extent to which containment measures affect different kinds of businesses, and how long it lasts.

The second area is workers’ compensation claims. We could see spikes in workers claiming they were not adequately protected by their employers against exposure to the virus brought about by their normal working duties. It is impossible to know at this stage how significant such claims could become. But insurers offering this type of cover to employers may need to brace themselves, depending on how things develop.

Finally, the volatility and falling interest rates within the financial markets will likely impact general insurers from an earnings and solvency perspective. The impact is likely to be greater for life insurers and therefore is addressed in more detail below.

A mixed diagnosis for Health Insurers

The impact on health insurance is hard to determine at a global level because the impacts will be very different country by country. This is both because the number of actual cases and deaths could vary greatly between countries/regions, and because of the varied make-up of health coverage itself. In some countries, such as the US for example, most healthcare is privately provided (except for the elderly where Medicare plays a big role), while in others, such as Europe and Canada, there is much higher public provision. In Asia, the national health systems are often immature and there is much private coverage.

The key issue currently in most countries is to enable rapid testing of individuals, particularly people in vulnerable populations such as the elderly or those with underlying health conditions, especially compromised immune systems. In most countries, this testing is free (provided by governments) or the costs are being waived by healthcare providers and/or health insurers. Free treatment, however, is not universal and these costs can be substantial.

As yet, we simply do not know what the ongoing treatment requirements and eventual mortality or morbidity rates from the coronavirus will be and therefore what the cost might be for health insurers.

However, I believe that the crisis may have a number of long-term (positive) effects on the sector. Firstly, as the pressure on health services rises due to the sheer number of patients, we are likely to see a rise in telehealth services, offering consultancy to patients via phone or online video services. This could have constructive long-term effects, helping healthcare reach more remote and less affluent populations including the under- or un-insured. Making healthcare more available and accessible means that, in some small way, societies may benefit from learnings and actions taken during COVID-19

Secondly, the very pandemic itself may cause more people to reconsider their individual health insurance needs. In the wake of the SARS epidemic, for example, we saw a temporary spike in critical illness policy sales in Asia. We may see a similar phenomenon post-coronavirus, with rising sales of health insurance, critical illness and even life cover across the world.

Market volatility creating more difficulties for Life & Retirement Insurers

Of all insurance segments, it is life insurers who are facing the most difficult challenges. The industry is closely monitoring the potential impacts on mortality rates, however, we expect that life insurers may also feel significant impacts due to what is happening in the financial markets.

Because of the long-term assets and liabilities that life insurers hold, market volatility is always challenging for the sector – and we have seen extreme volatility in recent weeks. Major exchanges around the world have experienced some of their worst falls in decades, even if ground has later been made up again. Movements in equities, interest rates and credit spreads create tremendous asset liability management risks for life insurers as yield curves flatten.

Globally, life insurers manage more than $20 trillion in assets and as much as half of this is estimated to be in government bonds. But the yields from these have fallen dramatically – US 10 year bond yields have more than halved since the end of 2019 for example. The crisis also puts pressure on non-Government bonds which may cause credit concerns and may lead to an increase in bond downgrades.

In addition to this, as noted earlier, central banks have been slashing interest rates. We were already in a low interest rate environment – which is always difficult for insurers in general, but especially for life insurers – now rates are heading down even further (possibly below zero in some countries). Legacy businesses or products that are highly sensitive to market variables such as variable and fixed annuities, long-term care insurance and universal life insurance are likely to feel the effects more deeply.

All of these factors can result in solvency ratio challenges. Prior to this COVID-19, much has been said about the industry being well-capitalized and so insurers may be starting from a position of strength as it relates to capital. However, risk-based capital approaches vary widely by country which impacts how reactive the ratios are to current market conditions. For example, the EU’s Solvency II regime is very sensitive to financial market volatility and movements in bond yields and credit spreads. Other capital approaches could be sensitive to bond downgrades. As a result, insurers will need to closely monitor solvency ratios in order to meet economic, regulatory and rating agency capital requirements.

The sector will be hoping that the pandemic blows itself out before long. Otherwise, if market volatility continues and fluctuations persist, they may need to reassess their investment portfolios and exposures to potentially reduced investment earnings as well as protecting capital/security for policyholders and key stakeholders.

Be Cautious about the cost-cutting response

Clearly, this year could prove to be a difficult one for many insurers given the predictions of the economists, some of which are saying that a “U” shaped or even a “W” shaped recovery pattern may be more likely now (as opposed to “V” shaped). Early questions are starting to emerge around possible recessions around the world. Why? We’ve seen such varying virus containment efforts which dramatically impact consumption levels on a local level and therefore impact speed to recovery. Expectations vary on the long-term impacts; no one can be entirely sure.

While it is tempting for insurers to suspend investment and cut costs in such a challenging financial year, I believe the crisis creates an incentive for them to do the reverse – continue to invest in how they operate and create a more agile, digitally-enabled business. In other words, now more than ever insurers should keep investing forefront in their minds so that they can be prepared for the future.

By this I mean firstly embracing the flexible and remote working that will be needed across all sectors due to the virus, insurance included. The crisis provides the opportunity for insurers to test and ensure that their businesses have sufficient connectivity to support more staff working off-site and in flexible ways – now, and for the future too.

What this means today is that management teams should be rapidly assessing operational areas with high concentrations of human capital support such as call centers, claims, shared service centers, etc. to determine the impact. Business disruption or resiliency plans are being tested, stressed and in some cases derived. This is especially true in areas where there is a lack of digital workflow tools, limited virtual or mobile work station capabilities or unscaled communication technology. These traditional methods are often used for completing moderate to more complex processing activities that require a team approach to resolution. This situation is allowing for a significant shift in the adoption rate of new ways of working, including the supporting technology, which may change the ways organizations are run post crisis.

Speaking of technology, the crisis could also be the spur to look at moving more systems and applications to the cloud – an area that insurers have lagged other sectors in. With more people working remotely, having systems in the cloud offers much greater bandwidth and capacity than if staff are accessing on-premise servers remotely. This is an opportunity for the insurance industry and could be the catalyst for this movement. Actuarial modelling software, for example, often sits on individuals’ computers, as there are deemed to be security issues with putting it in the cloud. But with today’s cloud services offering enhanced security protocols, perhaps the time has come for more of the industry to make the move.

More broadly, insurance businesses – as other sectors – need to embark on the digital transformation of their organizations, to become more agile, responsive and connected enterprises. Perhaps one legacy of the coronavirus crisis could be that it actually propels more insurers to do that.

These are extremely challenging times for individuals, families, businesses and indeed whole societies and economies. The insurance industry has a key role to play in supporting customers and societies through the crisis and the recovery.

Laura J Hay
Global Head of Insurance
KPMG International

Memories of Dr. Gordon Cumming

Dr. Gordon Cumming has died at the age of 91.

For many medical directors, the name brings instant recognition. Gordon was a legendary figure in the specialty of insurance medicine. He was a Past-President of the Canadian Life Insurance Medical Officers’ Association (CLIMOA), and a long-time member of the American Academy of Insurance Medicine (AAIM) which honored him with its Distinguished Physician Award in 2001.

I will remember Gordon as a larger than life personality. He was so many things all wrapped up in one person: a world renowned exercise physiologist, a pioneer in sports medicine, a consummate pediatric cardiologist, an expert in insurance medicine, a leader by example and, by respect, an advocate, a wonderful family man and a once in a lifetime colleague you’ll never forget.

Gordon grew up in Winnipeg. After graduating from high school, Gordon obtained his initial postsecondary education at one of top Canada’s military colleges, Royal Roads Military College. Many of the talents and abilities that Gordon later applied to develop his distinguished career and guide his private life were apparent during his years at medical school at the University of Manitoba Medical College where he was gold medalist each year and recipient of the prize for highest overall scholastic, sports and leadership achievements.

Subsequent specialty training included a Cardiology Fellowship at the Cleveland Clinic during which his first wife, Patricia died, leaving Gordon with sole responsibility for their young children. Gordon had shared that information with me and it would result in a remarkable coincidence. In 1992, the AAIM annual meeting was held in Boston and the social program included a dinner at the John F. Kennedy Presidential Library and Museum. I had invited a cardiology colleague and his wife from nearby Framingham to join us. During our dinner conversation, my colleague mentioned that he knew one other Canadian cardiologist who had been one of his fellow trainees during his cardiology training at the Cleveland Clinic. He also remembered that his fellow trainee’s wife had died leaving this Canadian friend with several children to look after. I then told my friend that I had a surprise for him: your fellow trainee is sitting at the table behind us! That was Gordon!

I first became aware of Gordon in 1975. He had written a critical letter to the Editor of the Canadian Medical Association Journal that had recently published an article entitled A current view of Canadian cardiorespiratory fitness. The article received a lot of comment in the press because it had concluded that the average 60-year-old Swede was more physical fit than the average 30-year-old Canadian. I was director of the exercise laboratory at the Montreal General Hospital at the time and had been invited to write an accompanying editorial for the article. Gordon’s scathing critique of the methodology of the original article prompted me to check him out. My detective work disclosed that Gordon’s comments were those of a world-class expert in exercise physiology and testing.

Exercise physiology and physical fitness were an important part of Gordon’s life. He was one of the first advocates of the importance of exercise in the pediatric clinical setting. He was one of the first people to study exercise capacity in healthy children and those with congenital heart disease. His children benefited from Gordon’s exercise interest, each having to undergo exercise testing and regular encouragement to exercise regularly and participate in sports.

Coinciding with this interest, Gordon became a pioneer in sports medicine in Canada serving as a team physician for the Winnipeg Blue Bombers professional football team and as medical consultant for the Manitoba Marathon. In 1976, he served as team physician for the Canadian Olympic Team for the Winter Olympics in Innsbruck, Austria. Gordon was also involved in the Manitoba speed skating scene, serving as the long-time president of the Manitoba Speed Skating Association from 1969-81.

Gordon was inducted into the Manitoba Sports Hall of Fame in 2015. His acceptance speech (available via YouTube) is classic Gordon Cumming, self-deprecating, complaining about his daughters’ censoring of his remarks and generous thanks to those who helped along the way, especially his family.

I remember first meeting Gordon shortly after I became an insurance company medical director in 1988. Gordon had entered the insurance medicine community in 1981 when he joined The Great-West Life Assurance Company as Vice-President and Chief Medical Director, a position he would hold for the next 29 years. This was a time when many companies sought cardiologists for leadership positions because of their approach to risk assessment, and because heart disease was the leading cause of mortality.

Gordon brought unique skills to the position. He had clinical and administrative experience as Head, Section of Cardiology, Children’s Hospital of Winnipeg for 23 years. He was highly sought after as speaker for medical meetings as a result of his research and publications on exercise physiology.

Gordon’s approach to insurance medicine was old school. In many ways, he is one of the last of a breed. He continued to keep his hand in clinical medicine as a part-time pediatric cardiologist retiring at the age of 87. This allowed him to follow many of his patients from birth into adulthood. It also gave him enormous credibility when dealing with insurance-related complaints from clinicians.

In addition to making the transition to an insurance-based approach to risk assessment and disability claim adjudication, he also acquired in depth understanding of actuarial medicine’s mortality methodology and the business side of insurance. As a result, he understood the challenges faced by medical directors and underwriters working in the trenches and tried to address them in his presentations and publications. This approach is beautifully illustrated in Gordon’s chapter on Congenital Heart Disease in the Fifth Edition of Brackenridge’s Medical Selection of Life Risks textbook and in two of his classic articles in the Journal of Insurance Medicine where detailed literature reviews of specific congenital heart lesions are accompanied by numerous mortality tables and curves:

·      Cumming GR. Congenital heart disease mortality 20 to 30 years after surgery. J Insur Med 1994,26 (2):181-200.

·      Cumming GR. Heart disease manifesting in adults starting in childhood. J Insur Med 1995; 27(2):75-80.

Gordon’s sense of humour was legendary.

Introducing me as a speaker at a medical meeting in Regina, he once described me as someone who worships at the alter of Einthoven (the Dutch physician who invented the electrocardiogram). On another occasion at the 1995 ICLAM/AAIM meeting in Washington, Gordon ran into one of his former medical students who had premature gray hair. Gordon feigned shock and exclaimed that since his former students now had gray hair, it was time for him to retire!

For many years, Gordon and I would give individual lectures and then share the Acquired and Congenital Heart Disease Workshop at AAIM’s Board of Insurance Medicine’s Triennial meetings. There I observed what a great teacher and raconteur Gordon was. He would first warm up each group with some light banter. Then we would launch into our individual case-studies. I soon became the straight man setting up Gordon’s stand-up comedy teaching approach.

Gordon’s broad and in depth clinical knowledge of congenital heart disease allowed him to make his points by vivid examples from his practice. For example, to illustrate that an applicant with surgical correction of a Tetralogy of Fallot was unlikely to be a standard life insurance risk, Gordon told the story of such a patient who after surgery failed to appear for regular follow-up assessments. The applicant had become a jumbo truck rodeo competitor and died suddenly while standing on top of his monster truck and raising his fist in the air after winning an event. Who could not remember Tetralogy of Fallot’s post-surgery risk after that example?

Sitting through 8-10 workshops per meeting, we would know each other’s presentations so well, we could give each other’s presentations from memory. This occasionally had a downside for me. As a much sought after speaker at insurance medicine and congenital heart meetings, Gordon’s many responsibilities and busy schedule would occasionally conflict. On those occasions, he would volunteer me to take his place.

Gordon’s sense of humour was combined with a mischievous sense of fun. When he was president of CLIMOA, his idea for the closing dinner was to have a murder mystery dinner which was a big hit with the attendees.

We have lost one of the giants of insurance medicine.

Insurance medicine is a broad discipline; its scientific basis is the study of morbidity and mortality. Its practice requires experience in clinical medicine. Its domain or environment is the business world. Its responsibilities are to the individual who applies for insurance, to the company who employs its services, to the insurance industry and to society at large. One of the defining characteristics of a medical specialty such as insurance medicine is the existence of a unique body of knowledge and skills. Gordon has played a major role advancing this body of knowledge to benefit those served by the specialty. We all benefited from his teaching, guidance and support.

Ross MacKenzie

Dr. Ross MacKenzie, FRCP(C), FACC, FAAIM​

Memories of Dr. Pierre Auger

Dr. Pierre Auger of Levis, Quebec, and Honorary CLIMOA Life Member Dr. Gord Cumming of Winnipeg, both pioneering cardiologists, have recently passed away after a lifetime of service to  their cardiac patients and  their communities,  and very distinguished careers in the Insurance field.

On April 27, 2020, surrounded his loved ones, at the Littoral Palliative Care Home (MSP du  Littoral), Dr. Pierre Auger  passed away peacefully, in sweetness and serenity,  at the age of 82 years.

He was the son of the late Thérèse Dionne and the late Dr.Sylvain Auger.  He leaves to mourn his wife Lise Carrier, his daughter Renée Auger (Jean Cormier) and his adored grandchildren Camille Vermette (Maxime Choinière), Maude Vermette and Guillaume Vermette (Anne-Marie Beaudet) as well as Catherine Cormier and Louis-Charles Cormier; his brothers and sisters: Marie Auger (Dr Jean Émond), the late Louise Auger (the late Henry Beaudry), Jacques Auger (Luce Nadeau), the late Michel Auger (Renée Lachance), Claire Auger (Jean Poudrier), Suzanne Auger (Dr Guy L’espérance) and Sylvie Auger (the late Rodrigue Ferguson); his sister-in-law: Gabrielle Carrier (Pierre-Paul Gingras); his god-daughters: Suzanne Auger, Marie-Andrée Beaudry, Marie-Claude Émond and Annik L’Espérance; his nephews, nieces, cousins, friends and colleagues, as well as Louise Gingras, intimate friend of the family.

The family would like to thank all of the staff at the MSP du Littoral for their care and compassion and incomparable human warmth, which allowed his final moments to be serene.

As a pioneer in cardiology at the Hôtel-Dieu de Lévis, Pierre established the first coronary unit, was department head of the cardiology service, and was involved in the HDL Foundation.  He was as well president of the Québec Association of Cardiologists and Medical Director at Desjardins Sécurité Financière.  Pierre was an inspiration and a model for numerous colleagues up until his retirement in 2015.  He was passionate about medicine,and dedicated and attentive to his patients.  Pierre was also a lover of life, a loyal friend and especially a generous and exceptional family man.  His gentleness, his good humour and his joy for life have left an indelible mark in the heart of everyone who had the good fortune to encounter him.  Pierre, we will always miss you but your memory will remain with us forever.

Your condolences may be expressed by a gift to the Maison de soins palliative du Littoral

Given the exceptional circumstances of the pandemic, a private funeral was held on May 10, 2020.

En francais :

Le 27 avril 2020, entouré de l’amour des siens à la Maison de soins palliatifs du Littoral, s’est éteint paisiblement dans la douceur et la sérénité, à l’âge de 82 ans, le Dr Pierre Auger. Il était le fils de feu Thérèse Dionne et de feu Dr Sylvain Auger. Il laisse dans le deuil son épouse Lise Carrier, sa fille Renée Auger (Jean Cormier) et ses petits-enfants adorés Camille Vermette (Maxime Choinière), Maude Vermette et Guillaume Vermette (Anne-Marie Beaudet) ainsi que Catherine Cormier et Louis-Charles Cormier; ses frères et soeurs : Marie Auger (Dr Jean Émond), feu Louise Auger (feu Henry Beaudry), Jacques Auger (Luce Nadeau), feu Michel Auger (Renée Lachance), Claire Auger (Jean Poudrier), Suzanne Auger (Dr Guy L’espérance) et Sylvie Auger (feu Rodrigue Ferguson); sa belle-soeur : Gabrielle Carrier (Pierre-Paul Gingras); ses filleules : Suzanne Auger, Marie-Andrée Beaudry, Marie-Claude Émond et Annik L’Espérance; ses neveux, nièces, cousins, cousines, amis et collègues ainsi que Louise Gingras, amie intime de la famille.

La famille tient à remercier tout le personnel de la MSP du Littoral pour toute la bonté, la compassion et la chaleur humaine incomparable qui auront permis de rendre sereins ses derniers moments.

Pionnier en cardiologie à l’Hôtel-Dieu de Lévis, il a mis sur pied la première unité coronarienne, a été chef du service de cardiologie et s’est impliqué auprès de la fondation de l’HDL. Il a aussi été président de l’Association des Cardiologues du Québec et directeur médical de Desjardins Sécurité Financière. Pierre a été une inspiration et un modèle pour de nombreux collègues jusqu’à sa retraite en 2015. Il était passionné par la médecine, dévoué et à l’écoute de ses patients. Pierre était aussi amoureux de la vie, un fidèle ami et surtout un homme de famille généreux et exceptionnel. Sa gentillesse, sa bonne humeur et sa joie de vivre ont laissé une marque indélébile dans le coeur de chacun qui a eu le bonheur de le côtoyer. Pierre, tu nous manques déjà mais ton souvenir restera gravé en nous à jamais!

Vos témoignages de sympathies peuvent se traduire par un don à la Maison de soins palliatifs du Littoral