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International Life Insurance in Times of Global Crisis
In the broader context of civil unrest and the COVID-19 pandemic, economic volatility is prompting consumers to tighten their belts. How can long-term protection products like life insurance keep relevant?
The acute impacts of COVID-19 may be subsiding for many European and Asian countries, but the path to social and financial recovery is far from straightforward. It feels like the world is lurching from one crisis to another.
In the papers and on the airwaves, economists debate the relative prospects of a V-shaped recession or a general depression. Protests in Hong Kong against the central government in Beijing continue. Justified civil unrest and anger threaten to de-rail the United States, while its government grapples with soaring infection and fatality rates. Brexit looms on this year’s horizon, with newspapers in the UK reporting recently that No Deal is fast becoming Plan A for the British government.
This prospectus of doom hardly bodes well for consumer purchasing power or confidence in financial institutions. As individuals, we’ve never felt quite so conscious of our vulnerability to the immediacy and volatility of global events.
Given the present conditions of uncertainty, how can a relatively expensive, long-view product like international life insurance stay relevant?
The global context: not looking rosy
After a sharp sell-off in March, global markets have rallied strongly as national governments race to open up economies and societies. We’re gradually re-acquainting ourselves with routine life as the epicentre of COVID-19 shifts to the Americas.
Yet optimism that we’re over the worst of the COVID-19 crisis is tempered by three concerns.
Firstly, localised surges in infection are forcing national governments to keep their focus on infection containment, stalling attempts at returning society to normality. While these surges persist, recovery can only be tentative.
Secondly, scientists fear a deadly ‘second wave’ of global infections over the autumn months. Indeed, past pandemics such as Spanish Flu of the 1920s and the Asian Flu of the late 1950s have hit populations in separate waves each lasting several months. Public health officials around the world are justifiably concerned about a large-scale resurgence in infections across multiple countries after the present subsidence.
Thirdly, there’s a fundamental lack of understanding of COVID-19 the virus. Why do so many people infected with the virus remain asymptomatic? How can the severity of symptoms for those who do experience symptoms vary so widely? At this late stage, how can it be possible that COVID-19’s impact on the human body remains a mystery? And in today’s globalised world, how on earth have national governments failed to co-ordinate effectively to combat the virus?
These lingering concerns are not only threatening the global recovery, but they’re also changing the way individuals perceive risk in a way that perhaps hasn’t happened since 9/11. In short, we’ve never felt so personally vulnerable to events outside of our control.
International life insurance
Insurance is about dealing with risk. In times of increased risk — perceived or otherwise — it stands to reason that increasing one’s cover under an appropriate insurance policy is the most logical course of action. But in times of financial distress, this logic is tested sorely. At what point does one prioritise risk of potential financial loss over the reality of here and now?
Products like international life insurance — niche, relatively expensive, and protecting against a risk whose effects won’t personally affect the purchaser — are often the first to be dispensed by consumers.
Since February, we’ve fielded hundreds of questions from brokers, members, and prospective members about our life insurance product. Each question has a common theme: we understand the importance of international life insurance, but we’re more concerned with our current financial situation.
Here’s a rundown of these three audiences.
- Firstly, our broker partners. We work with thousands of brokers around the world. Some are part of enormous, multinational brokerages. Some are small, independent outfits. Yet they all want to understand how they can sell international life insurance to their clients in the present climate.
- Secondly, our members who might be experiencing financial pressure. Perhaps they are considering cancelling their policy, or maybe they are choosing which insurance policies in their portfolio to maintain and which to cancel.
- Thirdly prospective members. Those people who until recently were considering purchasing a life insurance policy with us, but have shelved those plans due to economic uncertainty.
We, William Russell, cannot advise consumers or brokers on why one insurance product is more important than another. But we can put the experience and expertise we’ve accumulated over the last 28 years in this space to good use, making general, informative statements about the importance of adequate financial protection.
For most of us, however, nothing will ever be more important than the future well-being of our family. In these unsettling times of increased risk and personal vulnerability, we must all decide whether we can afford to sacrifice long-term protection for the here and now.
Perhaps the investor’s mantra of maintaining portfolio discipline in periods of market volatility is relevant here. Investors commonly argue that time in the market is far more effective than timing the market. Just consider this note from Warren Buffet from the 1960s:
There is also a voice or two after any hundred point or so decline suggesting we sell and wait until the future is clearer. Let me again suggest two points: (1) the future has never been clear to me (give us a call when the next few months are obvious to you — or, for that matter the next few hours); and, (2) no one ever seems to call after the market has gone up one hundred points to focus my attention on how unclear everything is, even though the view back in February doesn’t look so clear in retrospect.
Warren Buffet, Buffet Partnership Letters, 1957–1970
Life insurance is not so different from investments. We don’t get to choose when disaster strikes, and we don’t have the chance to buy an insurance policy once the effects of the risk have already made themselves known. But when disaster does strike, surely we’re better off knowing we can rely on a good-quality insurance policy from a reputable provider.
We purchase life insurance to protect our families against both the present and the future. If our general risk increases, then it makes sense to increase our protection. Perhaps this means prioritising our current insurance portfolio or taking out additional cover in challenging times.
How we’re helping
Analysts report that claims related to COVID-19 will exceed the cost of events like Hurricane Katrina and 9/11; it can be hard for insurers — facing unprecedented losses — to know the right thing to do.
Not for some time has the insurance sector been under the microscope of public scrutiny. Livelihoods are at stake on both sides of the line. Several businesses in the UK are taking action against insurers such as Hiscox for non-payment of claims under business interruption insurance policies.
Some insurers seem better prepared to weather the storm than others. With a well-hedged balance sheet, companies like Munich Re are increasingly confident of managing financial losses. Yet other insurers have struck a tone-deaf note — eg AXA, who have ignored pleas from the EU regulators to suspend dividend payments to shareholders.
At William Russell, we’re thinking from the perspective of our members. Just as Google advises websites that higher search rankings follow a focus on the needs of the end-user, we take the view that what’s right for our members is what’s right for our company.
We’re uniquely well-placed to help our members (and brokers) through these uncertain times: –
- We’re privately owned and independently run, meaning our only obligation is to our members — not shareholders or investors
- We’ve been in the market since 1992, the year of Black Wednesday, and since then we’ve seen crises come and go
- We’re investing in the future of international consumer and corporate insurance
- We have the financial strength of the Allianz group behind our insurance products, a guarantee recently re-affirmed by Fitch
- We’re committed to providing affordable, long-term protection for expats in the here and now
That’s why we’re offering a 20% discount on this year’s premiums for members taking out an international life insurance plan who also have a health insurance plan with us. For all subsequent renewals, members will benefit from a 10% discount (for as long as they also keep their health plan).
The Financial Times – www.ft.com/content/44f33c70-7106-4a4c-9b8e-bf9f34162d1fSteven
The Financial Times – Bernard, FT analysis of ECDC and COVID tracking porject data
The Guadian – www.theguardian.com/commentisfree/2020/jun/03/pandemic-no-deal-brexit-vote-leavers-coronavirus
The Guardian – www.theguardian.com/business/2020/jun/01/multiple-uk-business-insurers-admit-liability-for-coronavirus
The Guardian – www.theguardian.com/business/2012/sep/13/black-wednesday-20-years-pound-erm
Bloomberg – www.bloomberg.com/news/articles/2020-04-28/virus-surge-in-southeast-asia-migrant-workers-serves-as-warning
The New York Times – www.nytimes.com/2020/05/11/health/coronavirus-second-wave-infections.html
Forbes – www.forbes.com/sites/rickferri/2015/10/06/six-rules-to-disciplined-investing/
Reuters – uk.reuters.com/article/uk-health-coronavirus-axa/frances-axa-spurns-eu-regulators-plea-to-halt-dividends-idUKKBN23A0L1