Why Post-COVID-19 Operations at a Small Life Insurer Look OK: Idea File

The co-president of Investors Heritage says planning for other scenarios helped the company handle this one.

By Allison Bell | April 17, 2020 at 05:13 PM

State insurance regulators and auditors have made the managers of Investors Heritage Life Insurance Company prepare for many different economic scenarios and catastrophic mortality scenarios that didn’t look much like the new COVID-19 pandemic world.

The result: The Frankfort, Kentucky-based company was in a good position to adjust for this scenario.

John Frye, the company’s co-president, said in an interview Thursday that, overall, the sudden, dramatic shift in how Investors Heritage operates has gone smoothly, the company has the financial resources it needs to weather the COVID-19 pandemic, and he has no reason to believe his company’s stability is unusual.

“We feel we’re in a pretty good position,” Frye said. “We think the industry is in pretty good shape.”

The idea is that typical small and midsize life insurers might be in pretty good shape because of the disaster preparation efforts that life insurers have been making in response to earlier crisis situations, such as the Sept. 11, 2001, attacks on New York and Washington; the major hurricanes that have hit New Orleans, New York and other cities; the 2007-2009 Great Recession; and the underlying fear that something like the 1918 influenza pandemic could happen again.

Investors Heritage

Investors Heritage was founded in 1960. It now focuses on selling products such as single-premium immediate annuities, single-premium whole life insurance policies, multi-year guaranteed annuities (MYGAs), and life insurance and annuity arrangements designed to pay for funerals.

The company has about 100 employees. In the third quarter of 2019, it had about $808 million in assets, according to a filing in the California Department of Insurance filing database.

Investors Heritage was a publicly traded company for many years. Aquarian Holdings, an investment firm based in New York, acquired Investors Heritage in 2018 and later helped it enter the MYGA market.

Aquarian made John Frye — an operating partner who served as the chief financial officer at Security Benefit from 2008 through 2013 — the co-president of Investors Heritage in June 2019.

Crisis Prep

Regulators and auditors have always required Investors Heritage to show how it would handle big shocks to invested assets and claim liabilities, and they also have required the company to develop detailed business continuity plans, to show how managers would keep the company going after a crisis, Frye said.

Investors Heritage managers were already thinking about three major COVID-19-related disruption scenarios in late February and early March, partly because the company was going through a routine risk management review process, Frye said.

Managers thought about the possibility that schools and daycare centers could close down, and cause problems for specific employees; the possibility that Investors Heritage could be unlucky, and face severe disruptions due to COVID-19 while most other companies were operating normally;  and the possibility that COVID-19 could lead to widespread business disruption.

Even though managers included a scenario involving widespread disruption, the general sense was that Kentucky was probably more likely to have school shutdowns than widespread work-at-home requirements, Frye said.

But, because of all of the planning, Investors Heritage had enough servers, data pipes and outsourcing services in place to give all employees the ability to work at home. The risk management reviews going on in February and March revealed that about half of the workers needed extra equipment to be able to work at home. Information technology managers knew what they wanted to buy to prepare for having everyone work at home.

A little later in March, when the possibility of a general work-at-home scenario increased, the company, the IT managers simply bought the items that were on their pandemic prep shopping list, from the company’s usual IT equipment suppliers.

The Crisis

Kentucky has classified Investors Heritage as an essential business, and the company can keep its offices open, Frye said.

At this point, he said, most employees are working at home. A few employees are going in, on staggered schedules, to process mail that’s coming in and send mail out.

“One of the advantages of our size is that it’s easier to move quickly,” Frye said.

Investors Heritage has already upgraded its computers and squeezed paper out of most of its processes, he said.

One of the main obstacles to squeezing more paper out of operations is that some clients still like to pay for their coverage with paper checks, he said.

For Investors Heritage, Frye said, one of the surprises has bene the idea of having a crisis that prevents employees from working together. In the past, he said, the company had assumed that it might have to move employees to a new location, not that the employees would have to work separately.

“You can’t always anticipate everything,” he said.

But, “now we all know we can all work remotely,” he said.

In some ways, he said, that capability might help with planning for other types of crisis situations.

Thanks to the cash-flow testing, Investors Heritage also appears to be well-prepared, in terms of reserves, to handle the possibility that COVID-19 could lead to lead to an increase in claims, Frye said.

Here are more things said Frye in the interview:

Claims: Before the COVID-19 pandemic claims came along, life insurance claims were a little lower than the company had expected. At this point, Frye said, the company has received only one COVID-19-related claim.

Annuity sales: Sales have held steady, and competitors’ sales also seem to be roughly in line with expectations, Frye said. “We’ve seen advisors be able to adjust quickly,” he said.

Preneed sales: Sales of products designed to finance funerals seem to be a little slow, simply because funeral directors are having fewer face-to-face meetings, and they tend to sell preneed arrangements at face-to-face meetings.

Support services: Frye said Investors Heritage is in a good position to provide outsourcing services for other insurers, if other insurers happen to need help with coping with COVID-19-related disruption.

Allison Bell, ThinkAdvisor's insurance editor, previously was LifeHealthPro's health insurance editor. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached at abell@alm.com or on Twitter at @Think_Allison.

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