Uncertainties around the rise and fall of COVID-19 transmission rates throughout this year mean that North American insurance carriers face unprecedented challenges that are likely to extend beyond the shorter-term remedies that many have already implemented, says a report by McKinsey & Co.

The report states that COVID-19 threatens to adversely affect new business, disrupt in-force management and claims, erode portfolio returns over the medium to long term, drive credit migrations in investment portfolios, and lead to a fundamental rebalancing of risk-reward trade-offs across asset classes.

Three factors will lead to a drop in new total premiums

While it is still early days, McKinsey anticipates a drop in new total premiums sold by North American life and annuities writers due to three factors.

The first is that economic conditions will likely cut the appetite for higher premium, more complex life and annuities policies. The report states this will be the case even though there has been increased traffic to online life insurance sites, suggesting a near-term spike in interest in life insurance products.

Second is that insurance carriers are becoming more conservative when it comes to pricing and underwriting, mainly because of a drop in interest rates.

Advisors like filling out paper forms, says McKinsey

Third, says the report, is that many advisors still prefer the ritual of sitting in front of their clients and filling out paper forms. As a result, new business and underwriting processes remain tied to paper applications and medical underwriting, particularly for high face-amount products. But with COVID-19, there will be fewer sales meetings for advisors, more disruptions to new business processing, cancellations of medical underwriting exams, delayed collection of medical records and reduced underwriting capacity.

But McKinsey says now is the time for insurers to support advisors, mainly in two ways:

  • Ensure advisors can transact digitally through all steps of the sales funnel, from prospecting through issuing policies.

  • Work to expand the availability of underwriting with no need to have fluids taken for medical exams within risk tolerance levels. Early data suggests life carriers are moving quickly in this regard.