Would-be insurance customers could miss out on pandemic-related coverage as beleaguered providers look to stem their losses, Rice Warner has cautioned, with premium increases “inevitable”.

The coronavirus outbreak is placing unprecedented pressure on life insurance companies at a time when profit margins are already suffering, the research house said in a report.

In 2019 alone, Australian life insurance companies reported a combined after-tax loss of $1.3 billion on their risk products (including life and income protection insurance).

Now, Rice Warner said, the industry fears coronavirus “will deliver a further hard blow” – and customers could be forced to pay more as a result.

“There will be some death and disability claims directly from the virus, but the impact of a sudden spike in unemployment and a general economic downturn will swamp that,” the report said.

“We know that disability claim rates are directly correlated to unemployment. Studies from Australia, New Zealand, Canada and the UK have all shown that unemployment rates and disability claim rates follow very similar patterns.”

Worker compensation claims in Australia are also closely linked to unemployment data, as the additional stress results in more claims for mental health problems.

The financial fallout caused by these complications are significant.

Rice Warner cautioned the outbreak could be “the final catalyst” that causes insurers to scrap long-term income protection products.

Financial woes raise fears for consumers

Weaker profits aren’t just a problem for insurers, though. They’re also bad news for consumers.

Rice Warner said insurers are seeing a lift in the number of applications as coronavirus fears encourage workers to consider their options – a trend the research house said could continue for up to two years.

That helps to fix the pervasive ‘under-insurance’ problem which has left many Australians without appropriate levels of cover.

But it also means insurance companies face greater financial risk, which suggests premium increases are almost “inevitable”, Rice Warner said.

What’s more, although most policies do not include exclusions for the coronavirus pandemic, the research house said it would become increasingly difficult for insurers to avoid adding exclusions to future policies.

Ultimately, this means customers could be forced to pay more for their insurance and lose pandemic-related benefits.

Tweet from @TALaustralia

The Rice Warner report comes after TAL, one of the largest insurers in the country, came under fire for reportedly planning to add clauses to new policies so the company would not have to pay out any claims directly or indirectly related to the coronavirus.

The planned exclusions would have meant those who have recently travelled, are showing symptoms of the coronavirus, or are part of a “high-risk group” (including frontline medical staff) would not be paid any benefits for illness caused by the disease.

TAL denied the reports but said new customers who fell into those categories were assessed individually (and could be offered modified terms) under a policy change the company implemented on March 18.

“All customers of TAL who had cover in place prior to 18 March, 2020 can be assured that they are fully covered in line with their policy terms and conditions for any impacts arising from COVID-19 [coronavirus],” TAL said.

“For customers who took out cover on or after 18 March, any modified terms applied to their policy would have been communicated to them at the time of taking out the policy.”

Tweet from @SenatorHume

Industry body commits to healthcare workers

Financial Services Council (FSC) – the industry body that represents TAL and other large insurers – made a positive move on Monday, though.

It announced a number of measures to protect healthcare workers.

Those measures include:

• Not declining applications for insurance coverage
• Not charging higher premiums
• Not applying a specific coronavirus pandemic exclusion to benefits.

“This means not only doctors, nurses and hospital staff but also those who may potentially be exposed to COVID-19 such as police, pharmacists, paramedics and aged-care workers,” FSC chief executive Sally Loane said.

“While not everyone will be able to get new cover for other unrelated reasons, this commitment means potential exposure to COVID-19 alone won’t affect the cover these workers can get with participating life insurers.”