For younger lives or lives without any co-morbidities, there may not be any changes in underwriting
The Institute of Actuaries of India’s recent study has modelled various scenarios to forecast the trajectory of COVID-19 cases and deaths in India. Its immediate past president Sunil Sharma, President-Chief Actuary and Chief Risk Officer, Kotak Mahindra Life Insurance, spoke to Preeti Kulkarni about the report’s key projections and the pandemic’s long-term impact on insurance processes. Excerpts:
What are the key insights from the IAI Pandemic Research Group's report?
One of the key points is that the rate of spread depends very heavily on government measures at all levels – central, state and municipal. Also, the extent of testing has a major impact on COVID-19’s intensity. However, whether citizens follow basic sanitisation and social distancing rules or don’t, also plays a significant impact. The group believes that the spread of the disease happens mainly from asymptomatic carriers. Enhanced testing and contact tracing can help in early identification and keep the case fatality rates low.
As the government, medical infrastructure and the citizens are becoming more adept at identifying the early signs and following the guidelines, the recovery rates are showing signs of improvement. However, we need to ensure that our medical facilities do not become overwhelmed as the pandemic spreads, particularly in Tier-II cities.
Frequently Asked Questions
A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.
There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.
Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
As of now, India has registered over 78,000 deaths. IAI report’s worst-case scenario projects deaths to go up to over 3.56 lakh by September 30. What is the rationale behind this estimate?
The worst-case scenario assumes that the case fatality rate will stay closer to levels observed around June 30, 2020. However, we have observed considerable reduction in fatality rate over last couple of months. This is primarily due to to wider and standardised treatment protocol and enhanced testing. This has led to early diagnosis and higher recoveries.
Since it was difficult to project a stable state fatality rate in the absence of detailed data, we have presented a range of possible outcomes in our report. The reduction in fatality rate is in line with the ideal scenario depicted in the report (1.36 per cent in September; 1,11,863 deaths by September 30, 2020).
What learnings have underwriting and actuarial professionals picked up from the pandemic fallout? Did earlier epidemics such as Swine Flu or SARS affect actuarial practices?
Actuaries routinely model and factor in one in 100 or 200-year events such as Swine Flu and SARS while performing stress and scenario testing on the numbers being reported. As much as these are rare events, we have the right knowledge and tools to mitigate risk for insurance companies from such events to some extent. The pandemic has taught us that the correlations of various risks that we analyse will require further study. For example, in an ordinary scenario, mortality risk is linked to age, occupation, economic profile and so on. It is assumed that those with better economic profiles will have lower mortality rates while these will be higher those from economically weaker backgrounds as they have limited access to healthcare. But these correlations could be changing with this pandemic. The transmission took place initially through international travellers from affluent backgrounds. So we will need to take a closer look at these newer factors. In the meantime, as a precautionary measure, insurers are now setting aside additional provisions for the impact of COVID-19.
Coming to underwriting, most companies are learning to digitise underwriting measures fully and innovate. Instead of asking policyholders to get medical check-ups done, they are using proxies like telemedical and video-based underwriting for identifying and underwriting risks.
Over the medium term, how will COVID-19 change risk perceptions around mortality rates, and therefore premiums, for protection policies? Will co-morbidities now be seen as bigger risks than earlier or will the increased focus on health and hygiene lower mortality risks?
Well, it’s early to comment since the long-term impact of COVID-19 is yet to fully emerge. So far, it’s been observed that individuals with co-morbidities or chronic conditions have a higher risk of mortality (death), but the incremental mortality is not fully known. In other words, the additional impact on mortality risk in case of, say, diabetes, heart-related conditions and other co-morbidities will only be known as the experience emerges.
Also, it is not yet known if there will be additional complications after recovery that are permanent or irreversible and will accelerate mortality, which is not currently reflected in the premiums.
Once a vaccine is found, this incremental mortality risk is likely to reduce. Also, the treatment protocols are emerging rapidly with time and it is possible that the prognosis of individuals with co-morbidities, once infected with COVID-19, will improve. This will lead to higher survival rate for infected lives. Given the number of unknowns, however, it is difficult to predict whether the premium rates for protection policies will undergo change in the short-term due to the pandemic.
How do you see health insurance underwriting changing post COVID-19?
For younger lives or lives without any co-morbidities, I don’t expect any changes in underwriting, as the long-term adverse impact, based on the evidence so far, is minimal and infected individuals are making full recovery. However, for older lives or lives with co-morbidities, as some reports have indicated, there are post-recovery complications that may require additional hospitalisation or long-term treatment even after the individual has recovered from COVID-19.
If this continues even after a vaccine is found, then there may be changes in the underwriting practices. The insurer may want to know, at the time of policy issuance, if the applicant has been infected with COVID-19 and whether there are any complications or ongoing treatments. Insurer needs to be clear on how to identify non-disclosures in such a scenario as well as whether it can be classified under pre-existing conditions.Moreover, due to the guaranteed life-long renewability feature (in health insurance policies), there can no fresh underwriting for existing policies on renewal. Therefore, overall, it may take time before insurers change their underwriting terms.