Rising Impairments in US Life/Health Insurance: Insights 2023
Exploring Impairments in the US Life/Health Insurance Sector
The US life and health insurance landscape has witnessed significant changes in 2023, with a notable increase in impairments as highlighted by a report from AM Best. Recent analysis revealed that the sector experienced ten insurance company impairments this year, contrasting sharply with the previous year's absence of similar incidents.
Understanding the 2023 Impairments
The Best’s Special Report, named "2023 US Life/Health Impairments Update,” sheds light on the troubling trend within the insurance industry. Between 2000 and 2023, a total of 193 life and health insurers faced impairments, which break down into specific categories: 159 resulted from insolvencies and liquidations, while 32 underwent rehabilitations. Currently, 12 of those rehabilitation efforts remain ongoing.
The Impact of Rapid Growth on Insurers
A striking detail from this year’s report is that six of the ten identified impairments are tied to Friday Health Plans. These companies encountered difficulties primarily stemming from their aggressive growth strategies during their formative years. As a result, they were compelled into receivership, ultimately leading to liquidation due to their reported insolvency and the inability to secure additional funding from investors.
Insights into Industry Trends
Analyzing the entire span of the study period reveals that accident and health insurers, as well as health writers, contributed to approximately 70% of all impairments. In contrast, small life insurers that typically offered low-value industrial or burial policies in southern regions were responsible for about 14% of impairments. The remaining cases involved fraternal entities and various life or combined life/annuity/health business ventures.
Identifying Main Causes of Impairments
The report also addresses the root causes behind the impairments recorded between 2000 and 2023. Notably, the challenges posed by operating as a qualified nonprofit health insurance issuer—known as Co-Ops under the Patient Protection and Affordable Care Act—accounted for 19 impairments. Additionally, 15 impairments were linked to fraud or allegations of fraud, while a total of 13 companies faced failures following periods of rapid expansion.
Conclusion and Key Takeaways
This uptick in impairments within the life and health insurance industry serves as a call to action for stakeholders to critically assess the operational strategies of insurers. The insights provided by AM Best highlight the importance of sustainable growth and sound financial practices, especially for newer companies vying for market share. The industry must adapt and evolve in response to these pressing challenges while ensuring consumer trust and regulatory compliance.
Frequently Asked Questions
What caused the rise in impairments in 2023?
The rise in impairments is attributed primarily to rapid growth strategies of some insurers, leading to insolvency and subsequent liquidation.
How many impairments were reported in previous years?
In contrast to 2023's ten impairments, there were none reported in the previous year, indicating a significant shift in the industry.
Which companies were primarily affected by impairments?
Friday Health Plans companies were notably impacted, facing financial challenges due to their growth strategies.
What percentage of impairments come from life insurers?
About 14% of the impairments stemmed from small life insurers primarily selling lower-value policies.
What are the main issues faced by health insurers?
Health insurers have encountered significant challenges stemming from operating as nonprofit issuers under healthcare legislation.
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