Working Paper: NBER ID: w28172
Authors: Timothy F. Harris; Aaron Yelowitz; Charles J. Courtemanche
Abstract: The profitability of life insurance offerings is contingent on accurate projections and pricing of mortality risk. The COVID-19 pandemic created significant uncertainty, with dire mortality predictions from early forecasts resulting in widespread government intervention and greater individual precaution that reduced the projected death toll. We analyze how life insurance companies changed pricing and offerings in response to COVID-19 using monthly data on term life insurance policies from Compulife. We estimate event-study models that exploit well-established variation in the COVID-19 mortality rate based on age and underlying health status. Despite the increase in mortality risk and significant uncertainty, we find limited evidence that life insurance companies increased premiums or decreased policy offerings due to COVID-19.
Keywords: COVID-19; life insurance; mortality risk; pricing; event-study models
JEL Codes: D81; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| COVID-19 mortality risk (I12) | life insurance pricing (G52) |
| COVID-19 mortality risk (I12) | policy offerings (G52) |
| COVID-19 mortality risk (I12) | differential increases in premiums for older individuals (G52) |
| differential increases in premiums for older individuals (G52) | policies with the lowest prices (G52) |
| COVID-19 mortality risk (I12) | removal of policies for oldest age group (75 and older) (J26) |
| market competition and regulatory considerations (L43) | overall lack of significant response in premium adjustments (G22) |
| changes in underwriting practices (G22) | mitigated perceived risk from COVID-19 (E71) |