At the time of writing, March 2, 2020 the status of COVD-19 (Coronavirus) is still mostly speculative in the United States. The Centers for Disease Control and Prevention (CDC) is closely monitoring the situation, and as of today, the overall health risk to US citizens is “low” per the CDC.
For this article we’ll be looking closely at:
- populations and economics of both the US and China
- proven effects of Coronavirus on the insurance market in China
- and we’ll be speculating on whether Coronavirus will have similar impacts on our domestic insurance industry
We’ll attempt to make scientifically sound predictions as to the implications Coronavirus could have on US-based insurance products. We’ll focus on personal lines like health insurance and life insurance products, and a nod at surplus lines as well, as they are likely to be impacted.
Coronavirus is not the first dangerous virus to rear its head in recent years. SARS and MRSA epidemics have given us the experience and insight needed to monitor a serious viral respiratory infection like Coronavirus. For instance, we know that Coronavirus’ overall mortality, and it’s impacts on insurance products, will be closely tied to its final status as either a pandemic or epidemic disease.
Pandemic or Epidemic? What’s the Difference & Why it Matters
Per the World Health Organization (WHO), pandemics are worldwide outbreaks of a disease, while epidemics are defined as a regional spread. At this time, the virus is an epidemic.
But a few documented cases are appearing in other nations. China is a massive exporter of goods and foods, so we are confident the Coronavirus outbreak will become pandemic.
- There are at least 90,000 documented cases of Coronavirus worldwide at the time of writing, and at least 2,000 deaths.
- There are more than 79,000 cases in China (where the disease originated), and we are aware of 43 cases in the US, and two deaths according to the CDC’s March 2 update.
- Coronavirus has spread to every continent on the planet aside from Antarctica
When a dangerous epidemic is regionally contained, the effects of the disease remain primarily localized. Some of these effects are realized as:
- morbidity (overall future health risks)
- mortality (overall risk of death among individuals in a region)
- reductions in work productivity
- economic slowdowns
- educational lapses, low test scores, struggling students
Looking at China right now, we can also verify:
- local travel is reduced, as China’s carbon dioxide emissions have been cut by 36%
- domestic travel is significantly reduced, as of today China’s domestic flights are down by 70%
We should note that China provides many goods for other nations, particularly the US. Our cosmetics, technology, toys, meats and tires are sourced there. The US-China Trade war had slowed our consumption of Chinese goods since mid-2018, but recent acknowledgments from the Chinese government in the past few weeks had economists believing that trade would be heating up again.
Effects of Coronavirus on the Chinese Insurance Industry
According to Financial Times (FT) “Coronavirus has caused a decline in life insurance business for Chinese insurer Ping An but a tenfold increase in registrations for its online health consultation service.” Ping An is one of the world’s largest insurers and the second-largest shareholder in HSBC bank.
We can expect the Chinese insurance markets to suffer further as:
- travel is reduced to a standstill, meaning less travel insurance is purchased
- exports are reduced, meaning less cargo insurance is purchased
- shipments are quarantined, leading to pilferage, spoilage and loss, which would increase claims in surplus lines and cargo insurance
- fatalities cause an increase in life insurance claims
- medical visits to doctor’s offices and hospitals cause an increase in health insurance claims
- health insurance sales drop due to a widely-held exclusion for epidemics in China
These same factors (and others) all have the potential to affect the insurance markets in the US, to differing degrees.
Potential Effects of Coronavirus on the US Insurance Industry
The US and China are the two largest economies on the globe. But they are starkly different. Economically speaking, the US and China are entirely distinct:
- China is home to at least 1.4 billion people, about four times the 327 million living in the US.
- The US population is smaller but much wealthier, and is considered the 8th richest nation in the world, compared to China as the 42nd richest country.
- Chinese and US are nearly neck-and-neck in terms of production, making 40% and 34% (respectively) of the Gross World Product (GWP).
Looking at the insurance market in China, we can make educated guesses about the potential effects of Coronavirus on the domestic insurance markets. Imagine the epidemic becoming a real pandemic, with a similar number (90,000) infections in the US:
- US travel is reduced, meaning less travel insurance will be purchased.
- US exports will be reduced, meaning less cargo insurance is purchased, but to a significantly lesser degree than in the Chinese market.
- Shipments of exports would be quarantined, meaning there would still be tremendous claims for spoilage and loss, but significantly fewer than in China.
- Fatalities cause an increase in life insurance claims, and for larger death benefits than their Chinese counterparts.
- Patient visits to doctor’s offices and hospitals cause an increase in health insurance claims
- Health insurance sales may experience a slight initial rise, but since enrollment is closed for 2020, the sales bump would be small
Immediate term life insurance sales may see an initial boost. But as the disease spreads, and mortality increases, life insurers will likely place a moratorium on life insurance sales, particularly term life, as they are shorter contracts with lower premiums.
Will the Coronavirus Cause US Insurance Companies to Become Insolvent?
We don’t believe so. The regular influenza outbreaks that affect the US every year are likely to cause more deaths (61,000 a year) than COVD-19. But there is still so much we don’t know about Coronavirus, and a vaccine isn’t expected to be ready for several months at least.
According to Insurance Journal, our repeat experience with other virulent epidemics and pandemics in the last century has given insurers the knowledge to prepare for the adverse conditions presented by a legitimate pandemic.
Ultimately, the average American consumer should be more concerned with the future adjustments personal lines insurers may make to their existing underwriting guidelines. Life insurance applications and medical questions are getting more invasive as it is, and there may come a time when only the youngest and healthiest among us can afford any life insurance at all.
If you’re looking for insurance in the US right now because of Coronavirus, you’ve come to the right place. Insurance can help you stay healthy, and build an estate for your family. EINSURANCE is ready to help! Use our free tool to compare insurance quotes and save.