Over the past year, the life insurance industry paid out more in death benefits than in any year since the 1918 Spanish influenza pandemic.
Two years ago, right from the start, we suspected this was coming. Concerned insiders feared for the health of the life industry, already stifled by historically low bond rates. I heard one colleague observe: the Coronavirus outbreak will be our Titanic, the ill-fated ocean liner that sank its insurers. A famously instructive brief for the industry, he told me.
I am afraid he was wrong. The Titanic case is well known to me, crammed into my head by a compulsive 10-year-old nephew, Caiden. Like many spry tots, he was prone to obsessions, and given the stir around the eponymous movie back in 1997, and the deluge of books that followed, he became riveted.
As riveted as any of the 3 million hydraulically driven bolts that nearly held the ship together, I might say. No dinner conversation could be endured without a review of the final meal served on the ship’s Last Fateful Night, or the pros and cons of combining reciprocating engines with Parsons geared turbines. Caiden had so much to share; we had so much to learn.
Caiden’s parents were sympathetic, but after a very, very long journey, they announced that the luxury steam voyage to ‘enough’ had reached its port. Let’s go to the library, see what we find, they said. Caiden trusted them and got it, so he moved on willingly. He came home with three books on the Hindenburg disaster.
The child is father to the man, they say. Nine years later, he joined the Army and fought in Afghanistan. Caiden, alas, has no more need for other folk’s tales of calamity.
It was this cockleshell specialist who clued me in to the insurance angle. The Titanic was covered by Lloyd’s – spoiler: we know they survived. Lloyd’s umbrellaed a stable of marine underwriters and insurance companies, nearly all of whom subscribed to protect the White Star Line’s iron apotheosis of safety, comfort, and speed. The premiums were reasonable for 43,000 tons of raw metal and steam. What could sink such a marvel?
Down she went. The hugely expensive liner was only part of the bill. Cases of excellent champagne; the exactly priced gems of first-class passengers; the poor passengers’ manifest of ‘everything-we-own’: clothes, tools, paperwork – the last high-value indeed for immigrants. There was even a flash limousine. That car is famous in insurance circles: a Renault Type CB Coupe de Ville – a gorgeous, colossal dream on its own – considered history’s first auto claim against an insurer. Caiden knew everything; who knew it would matter?
Pianos. The legendary 1,500 bottles of vintage wine, still down there if Lloyd’s cares to claim them. Machinery and gowns; cases of supple Italian boots for the wealthy and pedestrian toothpaste, a new-fangled must-have for the rising middle class. It all went down; all was claimed and paid out within two weeks, as reported by the New York Times. This was back in the day when if they said it, you could believe it.
I’ll crib this quote from Lloyd’s own website, which they snipped from the Denver Post. We may wonder that London’s prime insurer was even aware of a frontier newssheet’s wittering, but Denver was the insurance capital of Western farm and industry. Then, as today, insurers were all linked together internationally, like bookies before Vegas stole their action.
“Divided as it is [the insurance cost], the loss of the newest of trans-Atlantic liners will not fall heavily on any one man or firm, and today, tomorrow and continuously thereafter, Lloyd’s of London will wager you immunity from loss on any proposition you care to submit.” – The Denver Post, April 16, 1912.
They were linked in, sharing out business, reinsuring risk, creating the system still operative today, and it worked flawlessly. Two weeks to pay all the Titanic claims, and not one single insurance firm sank with her.
Let’s talk now about insuring true value, our lives. In 2020, the US life insurance industry paid out $90.4 billion in death benefits. The American Council of Life Insurers said most of these claims were linked to the pandemic.
That’s a problematic claim in my book: so many victims were senior citizens, vulnerable to existing conditions, it can be hard to define what actually finished off, say, old Uncle Thomas (I’m still here; I just wish to be delicate). Whatever the true number, ACLI reports this hard statistic: death claim payments rose 15.4% year on year in 2020, the highest percentage since dire 1918, when payouts surged 41%.
How did the life industry survive the collision with Covid? The unfortunate reason is clear: as noted, most of the virus’s victims were aged. Elderly people commonly jettison their life insurance at retirement or reduce policy size to keep premiums manageable. The elderly, as a rule, are not overly insured.
There is a tradition in the life business: when a long-term client passes away, you present the check to beneficiaries in person. Insurance agents I know have shared heart-aching tales of lifelong clients, swept away, and how social distancing kept them from comforting wake or funeral. Despite all the actuarial tables, probing questions and medical hurdles, to say nothing of sometimes stiff premiums, life insurance isn’t a business for the hardhearted. It’s tough to insure someone’s life without getting involved in it.
So the pandemic really was our Titanic. It was tragic, staggeringly costly, yet survivable for the industry and the rattled survivors who made the boats. The industry endured because frankly, it is organized for disaster. Then, there’s all that new business. The pandemic buoyed interest in life insurance among younger customers, who have now swapped notions of indestructible youth for the assurance of life’s fragility and the shoals and ice castles forever lurking in fog.
It’s not likely this lesson will be forgotten – or will it? We know how sanguine – read shortsighted and foolish – we humans can be. It’s up to the life agents to make sure we don’t forget, to explain ever again, how they can wager our immunity from loss against any proposition that life may submit.