South Africans have spent the past six months in some form of lockdown, with the country now in alert level 1, which took effect on September 21 2020.

This indicates that we have made great strides as a nation to control the spread of the virus. It’s great news for an already weak economy where more industries will have less stringent lockdown measures and will be able to operate more effectively.

However, the further relaxing of the lockdown measures does increase the risk that more people may contract Covid-19 over time. This is a good time to understand how the pandemic has, and may still, affect the group risk market with regards to death (mortality) and illness (morbidity). 

The expected impact on death rates due to the Covid-19 pandemic 

The Burden of Disease Research Unit of the SA Medical Research Council, which tracks the weekly deaths for the country, has estimated 44,467 excess deaths from natural causes over the period between May 6 2020 and September 8 2020.

The graph below illustrates the trend of the deaths from natural causes since the beginning of the year. It shows that the excess deaths in SA (illustrated by the “Weekly deaths” line) peaked mid-July 2020 and have been on a decreasing trend since.

The trend of the deaths from natural causes since the beginning of 2020. Picture: SUPPLIED/LIBERTY
The trend of the deaths from natural causes since the beginning of 2020. Picture: SUPPLIED/LIBERTY

A similar trend of excess deaths has been observed in many European countries. Many of those countries have experienced their peak excess deaths two to three months before SA, with their actual number of deaths now similar to their forecasted numbers. However, there have been recent reports of a second wave of infections and deaths in countries such as the UK, France and Spain due to the relaxing of many of their lockdown restrictions.

Considering the above uncertainty from a mortality perspective, group life insurers are likely to take a conservative view with respect to pricing and the risk management of their books. SA probably reached its peak excess deaths in July 2020 with Covid-19-related deaths being significantly lower than the excess deaths number. The excess deaths are expected to continue to rise but at a slower rate for the rest of the year.

However, there is potential for a second wave of increased infections, and therefore deaths, due to the country moving to alert level 1 of lockdown. The further opening of the economy creates more opportunities for the virus to spread, with people likely to practice less social distancing. The poor mortality experience may therefore continue into 2021 in the absence of an effective vaccine.

Expected impact on illness due to Covid-19 

The impact on death rates due to the pandemic has been widely reported and is easily understood. However, the expected impact on illness rates, and hence future income disability rates, is more indirect, and may in some cases be influenced by the state of the economy. The lockdown leading to many companies operating sub-optimally is expected to have a long-lasting negative impact on the economy.

There has been research done, both in SA and abroad, to establish why adverse economic conditions lead to increased disability rates. The “hidden disabled”, or people that technically qualify for disability but choose to work, may decide to claim for disability if the benefits of receiving disability payments exceed that of working. Such a situation is more likely during an economic downturn when job availability is sparse, and salaries are reduced.

Tying in with the utility theory argument, more policyholders may enter disability claims for minor causes that may lead to increased notifications — this should naturally lead to an increase in declined claims. During an economic downturn, employees may be working harder to avoid redundancy, which may lead to increased stress and anxiety, especially at an organisation that is already struggling financially. The result of this may lead to an increase in mental illness-related claims. Specific industries that were more affected by the lockdown regulations may be more at risk.

Data gathered by Swiss Re has shown that disability income incidence rates increase with an increase in the unemployment rate. A similar impact in SA is expected given that the GDP figures for the second quarter have shown a major economic contraction.

It is generally accepted that the state of the economy affects morbidity experience. The extent of impact will depend on the extent of the deterioration of the economy and how long it takes to recover. The impact of the lockdown measures to contain the pandemic has considerably weakened the SA economy, and  is likely to last a few years.

The expectation is that disability incidence rates will increase, and claimant terminations will decrease during this time. Therefore, a hardening of disability rates is expected over time.

There is a potential second-order impact of mental illness issues caused by the lockdown that may further impact disability experiences. The effect of this will only be understood in a few years’ time.

For more information, visit the Liberty website.

This article was paid for by Liberty.

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