Lessons for life insurers from 1918
A researcher who published a paper on the US life insurance industry in the 1918 flu pandemic says there are some messages that are relevant to the situation currently facing the New Zealand life insurance industry.
Wednesday, February 4th 2026, 8:04AM
University of Auckland senior finance lecturer Gertjan Verdickt wrote Risk Management in Deadly Times: The U.S. Life Insurance Industry in the 1918–9 Influenza Pandemic, with Gustavo Cortes.
They used data from US life insurance companies during the period and found that high-exposure insurers charged higher prices on new policies than those insurers that were less exposed.
The pandemic increased awareness of the importance of life insurance, they said, and price increases were a crucial risk management tool to help the sector withstand a surge in demand.
Verdick said the research found raising prices was an important strategy to help the industry navigate the catastrophic event.
“This was possible because the pandemic created an immediate surge in public awareness and demand for life insurance. The scale of the death toll was a powerful lesson in mortality risk, and people flocked to get coverage.
"Despite paying out enormous sums in death claims, the industry remained solvent because new customers were willing to pay higher premiums, effectively recapitalising the insurers in real time,” he said.
He said the current New Zealand situation was almost the inverse. The Covid pandemic had increased awareness of health risks but had not led to a higher uptake of life insurance.
He said that was important for a few reasons.
“Unlike the boom in 1918, the life insurance sector in New Zealand is currently facing falling uptake and is shrinking as a proportion of the total insurance market. The industry has struggled to attract new customers, with lost premiums from lapsed policies at times outweighing new business.”
He said the challenge now was not a wave of mortality claims but the difficult economic environment.
“High inflation and cost-of-living pressures are the primary barriers for consumers. Insurance affordability has become a major concern for households.”
He said another problem was rising premiums in a weak market.
“Insurers are caught between rising operational costs - driven by general inflation and increased claims expenses - and consumer sensitivity to price. While some premium increases have occurred, they are happening in a market where demand is soft, not strong.
“In sum, while our paper highlights the power of pricing as a risk management tool for insurers during a major crisis, the key takeaway for New Zealand is that this tool is only effective when demand is high. The current environment of high costs and low demand presents a fundamentally different and, in some ways, more complex challenge.
“Why is this more complex? The shrinkage of life insurance companies is an important problem: we document that size is one of the main drivers of bankruptcy - smaller insurers were more likely to go bankrupt.”
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