{"id":2736,"date":"2025-12-19T13:31:36","date_gmt":"2025-12-19T13:31:36","guid":{"rendered":"http:\/\/egocene.com\/index.php\/2025\/12\/19\/are-life-insurers-writing-less-business-because-of-covid-19\/"},"modified":"2025-12-19T13:31:36","modified_gmt":"2025-12-19T13:31:36","slug":"are-life-insurers-writing-less-business-because-of-covid-19","status":"publish","type":"post","link":"http:\/\/egocene.com\/index.php\/2025\/12\/19\/are-life-insurers-writing-less-business-because-of-covid-19\/","title":{"rendered":"Are Life Insurers Writing Less Business Because of COVID-19?"},"content":{"rendered":"

COVID-19 has changed many aspects of our lives, so it isn\u2019t surprising to see life insurance markets affected. But some stories create false impressions that should be corrected.<\/p>\n

The story that some life insurers are writing fewer policies \u201cbecause of COVID-19\u201d has gained traction in both traditional and social media. While not wrong, like other stories involving insurance and COVID-19<\/a>, it requires context to keep it from wandering off into urban legend territory.<\/p>\n

\u201cLife insurers\u2019 ability to keep their promises to policyholders depends on numerous factors,\u201d explains Triple-I chief economist Dr. Steven Weisbart<\/a>.  \u201cAmong them are interest rates and how responsibly insurers underwrite policies and manage their investments.\u201d<\/p>\n

\n
\"\"
Dr. Steven Weisbart
Triple-I Chief Economist<\/figcaption><\/figure>\n<\/div>\n

Interest rates exceptionally low<\/strong><\/p>\n

What do interest rates have to do with life insurance? Many products (whole and universal life<\/a> and term life<\/a> for 20 years or more) calculate premiums in the expectation that, during the life of the policy, the insurer will earn enough interest from its investments, net of investment expenses and taxes, to help pay life insurance benefits. Many life insurance and annuity policies \u2013 especially those issued 10 or more years ago \u2013 guarantee to credit at least 3 percent per year.<\/p>\n

\u201cEfforts to stave off the recession spurred by attempts to \u2018flatten the curve\u2019 of infections and deaths caused by the virus have led to historically low interest rates,\u201d Weisbart says. <\/p>\n

Gross long-term rates on the investment-grade corporate bonds life insurers primarily invest in had been 4 percent for most of the past decade and plunged below 3 percent in August 2019. Since the onset of the pandemic, rates have fallen even further (see chart).<\/p>\n

\"\"<\/figure>\n

\u201cSo, life insurers \u2013 who planned to profit from the \u2018spread\u2019 between the interest they earned on their investments and the interest they credited on their policies \u2013 have lately struggled as this spread disappeared and then reversed,\u201d Weisbart says.<\/p>\n

Options are limited<\/strong><\/p>\n

\u201cSo, that\u2019s it!\u201d I hear some of you say. \u201cIt\u2019s all about rich insurance companies protecting their profits!\u201d<\/p>\n

Businesses must make a profit to stay alive, and U.S. insurers \u2013 one of the most heavily regulated and closely scrutinized businesses on the planet \u2013 have the additional requirement to maintain substantial policyholder surplus<\/a> to ensure claims can be paid. Life insurers, in particular, are required to maintain a special account \u2013 the interest maintenance reserve (IMR).<\/p>\n

\u201cThe IMR is drawn down when net interest earnings are too low to support claims \u2013 as is the case now,\u201d Weisbart says. \u201cIf it\u2019s exhausted, insurers can draw down surplus, but they can’t draw too much because they\u2019re required to keep at least a minimum surplus to protect against adverse outcomes in all other lines of business.\u201d<\/p>\n

\"\"<\/figure>\n

If their investments aren\u2019t performing as well as expected, insurers have two options: write less business or charge more for the business they write. <\/p>\n

Exercising a combination of these options is what life insurers are doing now.<\/p>\n

\u201cWhen interest rates eventually rise, the profitable spread will return,\u201d Weisbart says, and competition among insurers will likely lead to more liberal underwriting and lower premiums. \u201cBut we can\u2019t predict with confidence when that might happen.\u201d<\/p>\n

Until then, life insurers are tightening their criteria for issuing new policies and, in some cases, raising premiums so they can deliver what they\u2019ve promised their existing policyholders.<\/p>\n","protected":false},"excerpt":{"rendered":"

COVID-19 has changed many aspects of our lives, so it isn\u2019t surprising to see life insurance markets affected. But some stories create false impressions that should be corrected. The story that some<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[],"class_list":["post-2736","post","type-post","status-publish","format-standard","hentry","category-life-insurance"],"_links":{"self":[{"href":"http:\/\/egocene.com\/index.php\/wp-json\/wp\/v2\/posts\/2736","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/egocene.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/egocene.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"http:\/\/egocene.com\/index.php\/wp-json\/wp\/v2\/comments?post=2736"}],"version-history":[{"count":0,"href":"http:\/\/egocene.com\/index.php\/wp-json\/wp\/v2\/posts\/2736\/revisions"}],"wp:attachment":[{"href":"http:\/\/egocene.com\/index.php\/wp-json\/wp\/v2\/media?parent=2736"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/egocene.com\/index.php\/wp-json\/wp\/v2\/categories?post=2736"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/egocene.com\/index.php\/wp-json\/wp\/v2\/tags?post=2736"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}