US health insurers will receive an increase in both the number of claims related to the COVID-19 pandemic, as well as a rise in the severity of claims, according to A.M. Best.
However, A.M. Best said that there will be a decline in non-urgent claims as it is being recommended that elective surgeries be postponed.
The rating firm explained that many in the US are likely to avoid doctor offices and clinics, which should offset some of the impacts of the claims from COVID-19.
US federal and state levels have encouraged social distancing, which is expected to curve the spread of the virus and reduce the length of time that the crisis persists, which A.M. Best suggested will, along with other initiatives, also have an impact on reported cases and related potential claims.
A.M. Best also outlined the economic risk for health insurers has multiple compounding effects, including layoffs by employer groups, which would result in lower premiums and reduced membership; potential new sales that could fall as companies and individuals are focused elsewhere and changing health insurers is not a priority; and credit risk from a client perspective for both premiums and reimbursements from administrative services contract (ASC) clients where the insurer fronts the payment of claims for the employers, both of which could be pressured if employers suffer financial difficulties.
Additionally, A.M. Best noted that other economic risk factors include credit risk from an investment perspective; and the impact to investment income from the decline in the equity and bond markets, which are expected to be significant (from both the decline in investment income and realised losses), as well as reinvestment risk from the low-interest-rate environment.
According to the rating company, the operational risk for health insurers will be driven by the ability to process an influx of claims and inquiries from its members.
A.M. Best said: “The spread of the virus, the severity of the illness suffered by those affected, and how long the outbreak in the US will determine the impact on health insurers.”
While its outlook for the US health insurance industry remains stable, A.M. Best acknowledged that there is a potential for deterioration in capital from both an earnings and investment perspective.
The rating company said: “The favourable earnings trends over the past few years have resulted in the strengthening of risk-adjusted capitalisation for health insurers, which should aid in withstanding the financial impacts, both claims and investment market related, of the coronavirus.”
It added: “Besides, health insurer rates are set annually; if necessary, rates can be adjusted at renewal, so the financial impact to health insurers may be limited to 2020.”
A.M. Best said it will continue to monitor the coronavirus situation as it evolves and have discussions with health insurers regarding the potential impact.