RIAAN VAN REENEN: Like Covid-19, insurers must keep evolving

In two years Covid-19 has fundamentally shifted the shape and form of just about every aspect of life and work. The pandemic has become the biggest global crisis of our time; the human cost and economic impact are unimaginably devastating.

Through this unprecedented crisis it has remained imperative for us to commit to being a force for social good — simply because this health crisis affects us all. Lives depend on this commitment in a way that has never been more relevant. We’ve seen how much this is valued — both among clients and our adviser base — and have noted significantly lower lapse rates in medical insurance premiums than normal.

Globally, and to an even greater extent at home in SA, the heavy toll inflicted by Covid-19 is omnipresent. To put that into perspective, research by the Economist estimates that more than 20-million people have died from Covid-19 worldwide, or about 0.25% of the world’s population. In SA excess deaths have exceeded 300,000, which is about 0.5% of our entire population and double the estimated worldwide impact.

Our data shows that individual mortality rates across the age spectrum have increased by between 200% and 1,000% after a confirmed Covid-19 infection. As a result, the pandemic has had a profound impact on the life insurance industry, with life insurers estimated to have paid more than $10bn globally due to Covid-related claims during 2020 alone. Discovery Life has paid out more than R6bn in such claims, in addition to the non-Covid claims paid during the same period.

Discovery Life has maintained a strong capital and financial position throughout the pandemic and has been fortunate to be able to compile unique data insights and develop exceptional actuarial modelling capabilities to provide robust and timely insights into the possible progression of Covid-19 and its impact on overall claims. This has been invaluable for us as a business, our clients, and financial advisers.

As an example, Discovery Life has tracked the case fatality rate — the probability of death given a positive Covid-19 test result — within its client base, yielding interesting insights into the progression of the pandemic. The original strain had a fatality rate of about 1%, the Beta strain a rate of 2.1%, Delta 1.6% and Omicron 0.15%.

When you’re dealing with a risk that manifests in a fluid manner, the solutions required must adapt at a rate that matches its progression. Discovery has applied its shared-value insurance model, which functions as a perpetual cycle — a mechanism that supports innovative thinking. The cycle stalls when innovative thinking is lacking. Yesterday’s logic cannot cope well with turbulence either.

At a macro level, Covid-19 as a “turbulent” kind of risk means insurers need to be adaptable and flexible enough to realise that “insuring a risk only” is not enough. The nature of such a risk requires levels of flexibility and adaptability that puts in place realistic measures to manage the risk better, as well as sufficiently insure it. 

For Discovery, at the heart of responding to turbulent risks is letting our core purpose of “making people healthier and enhancing and protecting their lives” lead our actions. This purpose is the ideal basis from which to apply innovative saying, which is then actionable through our shared-value model.

Discovery Life has experienced significantly lower relative claims among highly engaged Vitality members. These clients have benefited from better health, lower monthly premiums and enhanced cover.

We were also able to leverage our shared-value model to become the first insurer globally to reward vaccination and reduce Covid-19 risk further. When more people are vaccinated society benefits. It’s heartening to know that we have not recorded any Covid-19 death claims to date from fully vaccinated Gold and Diamond Vitality members in our client-base.

What’s next for the SA life insurance industry?

While we’ve turned many corners in combating the severity of Covid-19, the trick for insurers around the world is to adopt a “perpetual cycle” approach that can keep up with its changing nature of risk to both protect and manage it in the most relevant of ways.

Doing so minimises both the development and widening of a new protection gap. It’s more important to prevent the formation of such a gap, given the immediacy of consequences it can have, than to plug it sometime later. To do this life insurers need to accelerate the following areas of focus:

• Digitisation — digital client-focused experiences and contactless technologies for clients and financial advisers
• Adjust business working models to provide flexibility to the workforce
• Take ownership of the (social) responsibility as a business to enhance and protect lives
• Personalisation of cover, premiums, and incentives to manage health
• Use of data and technology to streamline underwriting

It is expected that Covid-19 will evolve from the devastating pandemic we have experienced to an endemic disease over the next year or two. Due to its highly contagious nature it’s unlikely that it will ever completely disappear. It is also likely to remain a driver of excess deaths, disability and severe illness events for the foreseeable future.

Its impact on society must continue to be reduced through vaccination and booster shots, the continued advancement of medical treatments and an increased focus on wellness and lifestyle choices. This will ensure Covid-19 morphs into a disease with which society can co-exist.

Covid-19 has also highlighted the increased risk of future pandemics — an important factor in the context of life-insurance pricing and product design. There is, however, significant uncertainty over the coming months regarding new waves and variants. Although Omicron was significantly less severe than earlier variants, the development of new variants could be independent of previous ones. This implies that the severity of future variants could potentially be worse (not necessarily always the other way around) than what we have experienced with Omicron.

It may be somewhat premature to try to visualise a life beyond Covid-19. Yet it is possible to progress towards a more positive future with risk protection and management methods to minimise severe impact. There is a great opportunity to live well, both through and beyond this current pandemic. I believe life insurers play an integral role in making this a positive reality.

The key is to keep evolving. The future is ripe for it. While we may not necessarily outlive the existence of Covid-19, we can certainly survive through it in much healthier ways and ensure that our loved ones are financially protected in all scenarios.

• Van Reenen is Discovery Life CEO.