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Insurance Carriers and Mental Nervous Exposure

Implications during and post the COVID-19 pandemic

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    November 2020

    2020 has been full of surprises and has proven to be a challenging year from just about every vantage point. From a severe pandemic to a global movement for racial justice, I hesitate to say “we’ve seen it all.” The Dow Jones Industrial Average suffered its worst single-day drop on March 9th, murder hornets arrived in the United States, Ruth Bader Ginsburg passed away and we are in the midst of the U.S. presidential election. Additionally, the West Coast wildfires, Australian bushfires and the loss of influential personalities such as Kobe Bryant and Eddie Van Halen illustrate a year many will never forget.

    In this article, we’ll highlight our latest insights and considerations related to the global pandemic, economic recession and mental nervous risk exposure. Munich Re Life US has deep expertise in disability risk and has invested significant time and energy providing guidance to our disability clients on critical issues, some of which will be covered in this article. However, I’d be remiss not to mention that many other events that have made headlines this year – in addition to the pandemic and recession, also take an emotional toll and impact how we feel about the world.  

    In this article, we’ll highlight our latest insights and considerations related to the global pandemic, economic recession and mental nervous risk exposure.

    The Onset of the Pandemic

    In the early stages of the global crisis, many industries immediately pivoted to a remote work environment to mitigate business interruption. Insurance carriers adapted to new business processes and created underwriting workarounds to ensure new business applications continued to flow. At the same time brokers, previously hesitant to leverage online solutions, transitioned at an unprecedented level. 

    Many insurance carriers initially concerned about the impact of the crisis on the flow of new business  quickly began to wonder about the potential impact to in force coverages. How would their in force block of disability business perform during and in the aftermath of the pandemic and associated recession? When discussing new business, most carriers expressed their key concern as a drop in sales. While a drop in sales and ultimately “top line growth” is of concern, we believe there is greater risk in mental nervous exposure associated with a carrier’s in force block of disability business. 

    Current State of Mental Illness and its Impact

    Historically, both Group Long Term Disability insurance (LTD) and Individual Disability Income (DI) plans have included coverage for mental nervous conditions. Although coverage definitions vary by plan, Group LTD plans most commonly have a two-year limitation for mental nervous conditions. However, some carriers offer enhanced mental nervous coverage options up to the full benefit period, while individual disability contracts offer coverage options that range from  two to five years to an unlimited benefit. Given the potential for mental nervous claims to remain open for several years, it’s important to consider the current state of mental illness in our society and the likelihood that the well-publicized spike in mental nervous conditions described in this article may persist. 

    The pandemic is proving to have a significant impact on the mental health of the general population. A recent study from Boston University School of Public Health finds that COVID-19 has tripled the depression rate in the U.S. as compared with rates prior to the pandemic.1  Additionally, various studies from organizations including the Kaiser Family Foundation and the Centers for Disease Control and Prevention (CDC) confirm the trend of elevated mental illness since the start of the pandemic.2 The fear surrounding the pandemic and current social environment have introduced additional stressors that exacerbate anxiety and the risk of depression, such as the direct impact of contracting COVID-19 or watching a loved one suffer from the illness. Furthermore, the confluence of the pandemic,  social distancing requirements, and a down economy contribute to the spike. It appears, over the coming months, individuals will continue to face increased unemployment, witness steep increases in the number of failing small businesses, protests, a contentious political landscape, and uncertainty around the duration of the recession. 

    We don’t anticipate the elevated rate of mental illness to begin to decline until the introduction of an effective COVID-19 vaccine and clear signs of economic recovery. Following the terrorist attacks on September 11, post-traumatic stress disorder (PTSD) was found to be common among survivors during the first few years and persisted for at least 15 years for a substantial percentage of survivors.In addition, PTSD is one of the most prevalent long-term psychiatric diagnoses among survivors of the SARS epidemic of 2003, which infected 8,000 people and resulted in 774 deaths worldwide - a very small number relative to the more than 230,000 today.4

    It’s important to note that mental illness such as depression, anxiety and PTSD can manifest in a variety of ways, often impacting physical health. Common manifestations of these conditions include difficulty sleeping, poor appetite or overeating, frequent headaches, stomachaches, poor mood, increased drug and alcohol use, and worsening chronic conditions – such as high blood pressure and diabetes. Depression has also been known to increase the risk of fatal heart attacks by as much as 50% and increase a diabetic’s risk of dying from all causes by the same amount.3

    Munich Re Considerations

    Given the historic correlation between mental illness and traumatic events, it is imperative that disability carriers offering mental illness coverage prepare for a potential increase in claims stemming from the current landscape. 

    There is no “one size fits all” solution for disability insurers, but we encourage carriers to consider the following:

    1. Understand the magnitude of your mental nervous exposure. Does the new business added to your book have a mental nervous limitation or does coverage extend through the full benefit period? How much mental nervous exposure exists within your current in force block of business? Is this business priced appropriately? The business may be performing well today, but will a spike in mental nervous claims reverse that trend? What is your tolerance? 

    The length of the mental nervous benefit offered within the contract determines the level of exposure and the size of the reserve a carrier must hold for these benefits. Therefore, defining and managing an overall maximum exposure and risk tolerance is important. Taking extra care during underwriting and claim adjudication is recommended.

    2. Track mental nervous claim activity to identify trends.  For example, develop reporting capabilities to track:

    • Mental nervous inquiries and claims by industry, age, geographical region and income level;
    • New mental nervous claims opened by claimants with a history of previous mental nervous claims (also known as “reopens”);
    • Mental nervous claims that transform into physical claims after the M/N limitation period is exhausted. Depression, stress and anxiety can also exacerbate and prolong claims more “physical” in nature. These situations can prove more difficult to track but claim examiners and leaders should make note of claims that fall into this category and make management aware of the prevalence;
    • Claim examiners have traditionally been trained to listen for clues of matters that may impact a claimant’s recovery when conducting telephone interviews of disability claimants. Given the myriad of pandemic-related issues, carriers should consider reevaluating and updating examiner training and tools such as behavioral health questionnaires to ensure examiners have enhanced awareness of potential effects.

    3. Keep the lines of communication open. Trends identified by claim teams should be shared with underwriters. Claim team leaders should also consult in-house legal counsel to understand new litigation and regulation that could influence claim adjudication practices. COVID-19 has created new complexities in underwriting, claim adjudication and litigation that weren’t common prior to the pandemic.

    4. Stay informed. Does your company have access to information from other product lines that may serve as leading indicators to increased disability claims? Are you working closely with your reinsurer or other industry experts who have insights or research that can inform product and pricing changes? Are you reviewing bankruptcy and layoff reports and correlating those back to your book of business?

    Information is powerful. Ensure all pertinent information is shared with pricing and financial reporting actuaries – they don’t like surprises. It’s always best to make an educated prediction regarding experience based on current claim trends and market information.

    Additional considerations for Individual Disability products:

    Individual Disability policies are sold to individuals in a variety of occupations, with a large percentage of these policies sold to affluent individuals such as physicians, dentists, attorneys and business owners. The vast majority of physicians, in particular, have been adversely impacted by COVID-19. Whether they are on the front lines fighting the virus or their business has suffered and closed due to a lack of need for non-urgent medical care, physicians are feeling the impact.5

    A recent study by The Physician’s Foundation took a deep dive into the pandemic’s impact on physician wellbeing. Reported impact on physical health to date reflects 24% of physicians have sought medical attention for a physical issue as a result of COVID-19’s effects on their practice or employment, which is almost twice as high for female physicians.5  Fifty percent of physicians report having experienced inappropriate anger, tearfulness, or anxiety as a result of COVID-19; and 13% of physicians have sought medical attention for a mental health issue as a result of COVID-19.5

    Even before 2020, 59% of physicians felt overwhelmed and reported extreme levels of burnout in 2019.6 Factors that contributed to the increasing rate of burnout included too many bureaucratic tasks, such as charting and paperwork, in additional to spending too many hours at work – which has hit critical care, family doctors and neurologists the hardest. 6

    The World Health Organization (WHO) recognized burnout as an occupational phenomenon and will include a billable ICD code to specify a diagnosis of burnout in the International Classification of Diseases Handbook to be published on 1/1/22. This acknowledgement along with the impact of COVID-19 and additional stressors experienced this year should be considered as organizations monitor the in force block of physicians for potential increased mental nervous exposure. 

    Lawyers are also experiencing great difficulty in terms of layoffs and firm closures, as demand for legal work plummeted early in the pandemic. Despite recent recovery in the rate of new litigation, the declining ability to collect on billed services is contributing to firm layoffs.

    Additional considerations for group disability products:

    Group disability policies cover a much broader and diverse population than individual disability products and provide coverage to organizations with a broad range of incomes. Therefore, group policies may experience an increased level of mental illness claims at a rate more consistent with the general population.8

    Bankruptcies and layoffs across a wide array of industries have contributed to the stress and anxiety experience among this broader demographic of group policyholders. Studies show that individuals financially impacted by layoffs and closures and those with lower incomes have reported even higher stress levels.  

    The hospitality industry was especially hard-hit at the beginning of the pandemic due to social distancing and stay-at-home requirements. While the industry is slowly recovering, the impending flu season, coupled with continued social distancing requirements may prove too difficult for some businesses to remain open.

    Munich Re Expertise

    Our recent monthly Re Con Report identified companies that reported significant furloughs, layoffs and bankruptcies. From March through September 2020, we’ve seen a 263% increase in layoffs over the same six month period of 2019 and a nearly 100% increase in bankruptcies – impacting various industries and employees across levels.   

    While no carrier can predict with certainty the full impact the pandemic and correlating recession will have long-term, the U.S. has reached nearly 10 million virus cases, the death toll continues to rise and the recession is nowhere near over – it is imperative to arm your organization with the information necessary to make informed decisions. Be aware of your organization’s overall risk tolerance, understand the levers you have at your disposal to mitigate mental nervous risk today and going forward, and stay informed of current surveys and research on mental nervous risk, claims best practices and experience studies.

    In an effort to assist carriers along this journey, Munich Re Life US has joined a consortium of healthcare, medical research and insurance communities to pool de-identified data to extract insights to help combat the COVID-19 pandemic. We are a global disability expert and will continue to assist in identifying industry trends, communicate best practices and partner with clients to navigate the impacts of the pandemic and economic downturn.

    Contact the Author
    Dawn McMaster
    Dawn McMaster
    2nd Vice President, Business Development
    Group & Living Benefits
    Additional Resources -       Council for Disability Awareness -       Society of Actuaries -       Smith Group Disability & Reinsurance Consultants -       Employee Benefits Research Institute -       Insurance Information Institute -       Centers for Disease Control and Prevention  (CDC) -       LIMRA   References 1Boston University School of Medicine. (2020, September 2). COVID-19 has likely tripled depression rate, study finds. ScienceDaily. Retrieved October 29, 2020 from www.sciencedaily.com/releases/2020/09/200902152202.htm 2Kaiser Family Foundation (2020, April 24). KFF Health Tracking Poll – Late April 2020: Coronavirus, social distancing, and contact tracing.
    3Jordan, H.T., Osahan, S., Li, J. et al. Persistent mental and physical health impact of exposure to the September 11, 2001 World Trade Center terrorist attacks. Environ Health 18, 12 (2019). https://doi.org/10.1186/s12940-019-0449-7 4Mak, I. W., Chu, C. M., Pan, P. C., Yiu, M. G., Ho, S. C., & Chan, V. L. (2010). Risk factors for chronic post-traumatic stress disorder (PTSD) in SARS survivors. General hospital psychiatry32(6), 590–598. https://doi.org/10.1016/j.genhosppsych.2010.07.007 5Merritt Hawkins (September 2020). 2020 Survey of Amercia’s Physicians COVID-19 Impact Edition, Part Two of Three: COVID-19’s Impact on Physician Wellbeing. Merritt Hawkins
    6Kane, L., MA (January 2019). Medscape national physician burnout, depression & suicide report 2019. Medscape.com. https://www.medscape.com/slideshow/2019-lifestyle-burnout-depression-6011056 7Coe, A. (June 2020). Spike in work overshadowed by billing woes for law firms. Law360.
    8Kaiser Family Foundation (2020, May 27). KFF Health Tracking Poll – May 2020: Impact of Coronavirus on personal health, economic and food security, and Medicaid.

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