There’s a persistent rumor going around that COVID-19 is both highly infectious and also extremely deadly.
As the rumor goes, computer models originally predicted 2.2 millions deaths from COVID-19 in the United States alone. This prediction was based on the idea that 268 million Americans would become infected, and approximately 0.9% of those people would die as a result of infection. To achieve those mind-boggling numbers, computer models assumed each infected person spreads the illness to 2.4 other people. And those people spread the illness to 2.4 others, and so on. At this rate, the number of people infected doubles every 4 days.
If true, this sort of infection fatality rate would be more successful that any multi-level marketing scheme in history.
Also, with so many infected with COVID-19, certain industries would take notice—one of those industries being the sleepy life insurance industry.
The life insurance business lives and dies based on its ability to accurately predict death rates. If a life insurance company can accurately predict population-level death rates, it can make a lot of money selling life insurance to the general public. And, this is exactly what life insurers do—predict population-level deaths and use that information to make lots of money.
One thing to know about life insurance companies is they don’t like being wrong because being wrong means going out of business and going out of business means they can’t make money. And, having been in this business since 2004, one thing I have learned about life insurers is… they are very fond of making money and likewise… they despise losing money.
And, in the life insurance business, the best way to lose money is to be wrong a whole bunch of times about insured policyholder death rates. Dying costs money, and the more policyholder deaths there are, the more money a life insurance company loses. Now, to a certain extent, life insurance companies are prepared to lose money when people die. And, they’re even prepared to be a little bit wrong about the number of people who die—this is why they hold massive amounts of reserve capital and surplus funds. And, obviously, everyone dies at some point so making those insurance payouts is inevitable. But a life insurance company would prefer you live as long as possible so they can keep collecting premiums from you, keep making money, and avoid losing money for as long as possible.
On net, a life insurance company has to make a profit, just like any other business. They cannot lose money, on net, and remain in business.
If any of this sounds like common sense, it’s because it is.
What you might not know is just how good life insurers are at predicting death rates and minimizing losses from unexpected deaths. Their business model and longevity is proof that their statistical models work and have worked for a very long time. A statistical model that did not work would mean there would not be any life insurance companies and no life insurance policies. And, since there are life insurance companies that sell life insurance policies (and have sold them for a very long time), we can reasonably assume that the statistical model does indeed work.
This fact cannot be understated. Life insurers aren’t “just guessing” about population-level death rates. Nor are they gambling. They are predicting death rates in the U.S. (and all over the world where such data exists) with uncanny accuracy—enough accuracy to run a profitable business for centuries at a time, with no “help” from taxpayers.
The proof that life insurers know exactly what they’re doing, and are exceptional at it, is in the longevity of life insurance businesses. Many of the life insurers in existence today have survived the Civil War, the 1918 Spanish flu epidemic, both world wars, the Korean War, the Vietnam War, the Persian Gulf War, and 9/11.
In spite of the tremendous death counts experienced during multiple wars and a deadly pandemic, these companies continued to pay death claims and remained profitable. Most people do not appreciate the level of skill that this sort of thing takes. And, while many life insurers have decided to exit the business in recent years, it wasn't because their models failed. Life insurance is a capital-intensive business that requires a long-term perspective to succeed. In today's low interest rate environment, a growing number of the publicly-traded insurance companies are chasing higher-profit lines of business. The companies that remain, however, are still operating as they've always done.
Which brings us to the current state of affairs.
What everyone has been debating since the beginning of the pandemic is… just how deadly is COVID-19?
If COVID-19 is a uniquely deadly virus, then surely the life insurance companies would know it, wouldn’t they? Or, if they didn’t know it, they would certainly be studying it and repricing their products appropriately to account for the uncertainty in those death rates, right?
Life insurance companies are nothing if not conservative. They do not like uncertainty in mortality rates. And anything new, that poses a novel risk to their business, is something they will scrutinize if for no other reason than self-preservation.
So… what have life insurers done in response to COVID-19?
Would you believe… nothing?
Whatever lip service you may have heard from life insurance company executives, or industry commentators, the reality is, life insurance companies have taken little to no action to reprice their policies in response to the Covid-19 pandemic. Life insurance has not gotten more expensive in the last few years in the U.S.. In fact, it’s gotten cheaper. This follows the decade-long trend of falling premium rates.
We can see this show up in the simplest of life insurance products—the one-year annual renewable term life insurance product.
Life insurers have a multitude ways to design a life insurance product, most of which involve using a policyholder’s invested premium dollars to offset, subsidize, or otherwise “hold down” the pure cost of insurance, but all policies are essentially based on the one-year term insurance chassis. The annual (one year) term life product is—as the name suggests—a life insurance product with a contract term of just one year.
It’s the simplest form of life insurance and the one that most accurately reflects the pure cost of providing life insurance coverage without the benefit of using investment gains to create affordable premium rates.
Most life insurance products are priced such that more premium is collected than is actually needed to pay for the pure cost of insurance. The excess premium is then invested for future years where it will be used to offset the rising cost of insurance. For policies that are in force for decades, this makes a lot of sense. Anyone who has ever been around humans before knows that all humans eventually get old. And, furthermore, these old humans die at a much higher rate than young humans. And, because of this, it’s much more expensive to offer life insurance coverage to an old human than to a young human. Most old humans can’t afford life insurance, and most life insurance companies don’t want to take the risk of selling life insurance to an old human.
So, life insurers collect excess premiums from a young human buying life insurance. And then, when that young human turns into an old human, the excess premiums, plus any investment gains on those excess premiums, are used to pay for the increased cost of providing life insurance coverage in his old age. There’s also some profit generated from having invested this money for so long, which the insurance company keeps (or, in the case of mutual life insurers, pays to its policyholders), and which makes it worthwhile to continue collecting premiums from an old human who has been paying premiums for decades.
But, if you strip out all the fancy investments, what you have left is the pure cost of providing insurance coverage. And, this pure cost of insurance will most accurately reflect the real cost of providing insurance coverage. Looking at this from a different perspective, it reflects the real cost (to the insurance company) of taking on the risk that a policyholder dies. It is a true reflection of the amount of money needed to justify selling a life insurance policy to an individual.
This is important because… if more policyholders die than expected, or if expected death rates increase, insurance companies must reprice their life insurance products to reflect the higher mortality rates. They cannot infinitely justify low premiums just because the market wants a lower premium. This is not like selling a television set or a car. Mass production does not lower the cost of insurance. Demand, or lack thereof, does not change premium rates.
If a manufacturer of television sets experiences sluggish sales, it can discount the price of its T.V.s in an attempt to sell more of them. Life insurers cannot discount the cost of insurance.
Instead, life insurance companies create the demand for their product, set its price, and the marketplace pays what the insurer demands. The pure cost of life insurance reflects nothing more and nothing less the objective risk of a policyholder dying. And, until or unless someone figures out a way to negotiate with The Grim Reaper, it will always be this way.
To design the one-year pure term insurance product, life insurers calculate the cost of providing life insurance coverage to an individual for just one year.
So, what does it cost to provide pure term life insurance for one year?
In 2017, MetLife—one of the largest insurance companies in the U.S.—published its term insurance rates for its one-year term life product, which you can access here:
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According to MetLife's table, in 2017, a 45-year-old male, with a standard non-smoker’s rating, would have paid $0.85 per $1,000 of life insurance coverage. This is much lower than the 2001 table rate of $1.53 per $1,000.
That means a 45-year-old man who doesn’t smoke would have paid $425 for $500,000 of life insurance coverage, for one year (2017). In 2018, the policy would have terminated and insurance coverage would have ended.
Fast forward to 2021. MetLife no longer sells term life insurance because it spun off its life insurance division and formed Brighthouse Life Insurance Company. Brighthouse is, thus, a proxy for MetLife’s old term life product going forward.
A recent quote from Brighthouse Life Insurance Company, dated November 4th 2021, shows a 45-year-old male, standard non-smoker, can buy $500,000 of life insurance coverage, for one year, for $270. That is $155 cheaper than in 2017, before the pandemic started:
COVID19 Factors We Should Consider/Current Events-oyt-45-jpg
Something is amiss, or… excess deaths, to the extent they did occur, has not affected the cost of life insurance.
But, maybe this is a fluke. Let’s look at other ages and the associated costs for $500,000 of term life coverage in 2017:
Age 55: $835
Age 65: $2,395
Age 75: $5,685
Compare that to the one-year term rates for the same $500,000 of term life coverage in 2021 (2021 table available here:
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Age 55: $500
COVID19 Factors We Should Consider/Current Events-oyt-55-jpg
Age 65: $1,105
COVID19 Factors We Should Consider/Current Events-oyt-65-jpg
Age 75: $4,515
COVID19 Factors We Should Consider/Current Events-oyt-75-jpg
Across all observed ages, premiums for pure term insurance have fallen since 2017.
Of special interest is the age-75 costs for term life insurance. Few people would buy one-year term insurance at that age, but even if they did… the cost for coverage has declined significantly from $5,685 to $4,515—in spite of the high mortality rates of 75-year-olds during the pandemic.
At this point, it should be obvious to the casual reader that death rates from COVID did not cause a dramatic increase—or any increase—in life insurance costs during this time.
The logic behind the numbers hasn’t changed since the pandemic began, either.
Early on in the pandemic, a friendly acquaintance of mine, Pete Neuwirth, organized the available data from the CDC (before the government stopped reporting “deaths from Covid” and started reporting “deaths with Covid”) and published it to his blog, here: “Life Contingencies” - An Actuarial Look at COVID-19 Mortality - Peter Neuwirth FSA
Pete is a retired insurance actuary with 40 years of experience in risk management. I’ve found him to be unusually insightful during this time, especially when fear-mongering and hysteria has become the norm.
Anyway, of special interest is his summary of the probability of dying from a COVID infection:
Age — < 50 Probability of dying = .0003 (approximately 1/3000)
50-64 Probability of dying = .0013 (approximately 1/750)
65 + Probability of dying = .0085 (approximately 1/120)
Overall probability of dying if infected = .0024 (approximately 1/400)
His estimates back then are consistent with the current data published by the non-profit organization, Physicians For Informed Consent:
https://physiciansforinformedconsent...ugust-2021.pdf
So, you see, the data do not support the idea of COVID-19 being a highly deadly illness. Life insurance companies have yet to adjust their mortality pricing to reflect The Narrative™. And, regardless of what any particular insurance company’s vaccination policy is for its employees, or whatever public statements they make about COVID or public health policy, the boys in the back room who are responsible for pricing these life insurance policies are running the calculations based on what the data actually says… not what The Narrative™ says, and not what politicians, the medical establishment, and the news media is telling you. In short, the life insurance industry is functioning just as it always has—as the (mostly) quiet industry that hums along, largely ignoring what everyone else is doing and making money in the process... narratives be damned.
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Originally Posted by Michael Grantham
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