The Tribune

• ‘Noticeable’ rise in life/health cover drop

• Sector in ‘uncharted territory’ over COVID

• Plans ready to ‘restore’ client protection

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian life and health insurers are hoping the “noticeable increase” in policy lapses inflicted by the COVID-19 pandemic “bottomed out” in 2020’s final quarter, it was revealed yesterday.

Sandy Morley, the Bahamas Insurance Association’s (BIA) deputy chairman, told Tribune Business that the sector - which in 2019 paid more than $300m in claims - was “in uncharted territory” due to the devastating impact on jobs, businesses and earnings inflicted over the past ten months.

Confirming that the volume of lapsed life and health insurance policies far exceeds what the industry witnessed as a result of the 2008-2009 recession, Mr Morley said the “socio-economic” impact from individuals and companies electing to drop coverage was “far more concerning” than the effects on the underwriters themselves.

He disclosed that carriers were adopting measures to allow clients, who were previously in good standing, to restore their protection once the pandemic’s worst effects have diminished and their income and jobs have been restored.

Mr Morley said the spike in lapses occurred after the portion of the government’s COVID-19 emergency orders, which protected policyholders from losing protection if they failed to maintain premium payments, expired back in August.

Noting that the lapse rate had slowed in tandem with the economy’s gradual re-opening, he added that Bahamian life and health insurance underwriters were well-placed to survive any negative impact to their financials due to strong capital bases across the sector.

“We have seen a noticeable increase in lapsed policies as would be expected,” Mr Morley told this newspaper. “There are a number of critical segments of our economy that have come to a standstill. Those persons who are out of work are our clients, so there has been a noticeable increase in lapsed policies.”

While unable to quantify the increase on an industry-wide basis, he added: “I think from an industry perspective it’s obviously very concerning, and from a socio-economic perspective it’s far more concerning.

“Those individuals have been our clients for years, and I know most companies have put in place measures to restore cover once they resume employment. Most companies have put in place their own systems, processes and structures for persons to restore cover once this is behind us.”

Life and health insurance is critical to protecting Bahamians against unexpected risks stemming from life and death emergencies. Such policies, for instance, provide protection for a family’s home by paying off the mortgage in the event a breadwinner passes, for instance, while also safeguarding against exposure to unplanned medical bills that can be extremely high.

The enforced dropping of such coverage, known as policy lapses, due to the COVID-19 pandemic’s economic fall-out thus undermines a significant element of social and economic protection for many Bahamians and the wider society, with the ultimate result being that the burden of care falls on either the state or other family members.

Mr Morley, confirming that the life and health insurance industry has never experienced such a policy lapse rate before, said: “I know for a fact that in 2008, the last economic fall-out that occurred, we did see some level of lapses but not to the extent we’re seeing today.

“The pandemic is unprecedented in our lifetime, so most of the companies, our records do not reflect the level of standstill in the economy and industries that we’re seeing. We’re all in uncharted territory.”

Voicing hope that the rate of policy lapses has eased in recent weeks, the BIA deputy chairman told Tribune Business: “I think what we’re seeing now is that we’ve bottomed out to a certain extent. Most of the persons continuing to pay policies are still employed, so the lapse rate over the last quarter has not been as significant as it was in the 2020 third quarter.

“We are not seeing the level of lapses that we initially saw in the third quarter, especially after the emergency orders came to an end. That was in August, and the peak period was the end of the third quarter - the month of September.”

Acknowledging that the life and health insurance industry itself will be impacted by the consequent loss of premium revenue and profits, Mr Morley nevertheless told Tribune Business it was well-placed to withstand the effects.

“Most of the industry players are rather well capitalised,” he explained. “Our solvency is very strong. From a company level, we should be able to survive the fall-out. A lot of what we’re seeing now is consistent with the stress in the industry.

“The industry will survive. Profits will take a hit in the short term, and as the economy turns around and gets back to a degree of normalcy, maybe in 2023 or 2024, we’ll rebound from it. The industry is very strong, so we should be OK.”

Mr Morley gave an indication of the insurance industry’s importance to the Bahamian economy in late 2019, when he said: “I would just take a minute to highlight what is happening on the life and health side.

“On that side of the business, we have combined assets based on the Insurance Commission’s website in excess of $1.9bn. In 2018, the industry collectively paid $298m in claims and I expect in 2019 that number will be in excess of $300m.

“Additionally, collectively we paid in excess of $13m in premium taxes. Undoubtedly, with our partners on the general insurance side, the insurance industry has a major impact on the economy both now and will continue to do so in the years to come.”

The COVID-19 pandemic has impacted life and health insurers in multiple ways. Family Guardian, for instance, attributed a $3.7m decline in policyholder payouts for the nine months to end-September 2020 to a fall-off in medical claims caused by COVID-19.

Norbert Boissiere, the BISX-listed life and health insurer’s chairman, explained the seemingly counter-intuitive drop by pointing out that the pandemic had caused other medical/surgical procedures to be deferred or postponed as resources were devoted to fighting the virus.

And the mixture of lockdowns, curfews and other restrictions had further inhibited the access of many Bahamians to medical care. “Policyholder benefits totaled $59.6m compared to $63.3m for the nine month period of 2019,” Mr Boissiere said of the near-6 percent year-over-year decline.

“The positive variance in benefits continues to be attributed to a decline in individual and group medical claims incurred during the period as restrictions on movement and a decline in elective procedures impacted the normal access to medical care.”

However, its main rival, Colina Holdings (Bahamas) blamed the damage inflicted by COVID-19 on the value of its investment holdings for a 76.6 percent comprehensive income drop for the nine months to end-September.

The BISX-listed life and health insurance holding company disclosed that comprehensive income attributable to equity shareholders fell year-over-year from $11.5m to $2.7m during the first nine months of 2020. It said this resulted from “the significant impact that the mark-to-market price adjustments on its investment securities” were having.