AM Best is revising the outlook to negative for the US disability segment as a low interest rate environment looks set to result in adjustments to the discount rate used in setting reserves/pricing disability income business.
Additionally, while most disability income writers had reported improved morbidity, AM Best is expecting the spread of coronavirus to cause an interim spike of claims activity for the first half of 2020.
Disability claims are expected to increase somewhat, not just due to the coronavirus outbreak but because of typical spikes during times when the country is expecting a recession, as people anticipate they could be laid-off and file claims and others try to get procedures done while they still have benefits.
AM Best is uncertain if this will occur while the pandemic is addressed as most people are avoiding voluntary, non-essential surgery at this time and there may not be much forewarning before layoffs occur.
Coronavirus has the greatest impact on people with underlying health conditions, so it could trigger longer disability periods as it worsens these conditions.
AM Best says the ultimate impact on long-term disability claims remains unclear however carriers with strong absence management programs/capabilities should fare better.
It also appears that the east and west coasts are seeing the greatest number of cases, due to higher concentrations and more global travel in major cities.
Those with group coverages concentrated in those areas could also see greater impacts to their operations; this is an area AM Best will be analysing further.
The economy, which had generally been steady – aided by an improvement in the job market – also helped lower claims incidence rates and increase premiums, as employers expand their workforce.
However, this is another area where we expect a substantial negative impact, as the economy could have multiple compounding effects on disability income writers.