The COVID-19 pandemic is accelerating trends impacting insurers' finances, in particular the interest in additional government control in the market, according to a new report from Fitch Ratings.
Overall, Fitch projects that the pandemic will have a mixed impact on insurers' credit, with the drive to embrace technology and rethink traditional products leading to positive results. However, the likelihood of greater regulation and calls for an enhanced role of government in insurance are potentially negative factors to watch.
Fitch's analysts wrote that while attitudes remain split, the 2020 election cycle and especially the Democratic primary highlighted growing support among Democrats for a single-payer system. Launching a public option plan or continuing to expand Medicare and Medicaid eligibility are also growing in popularity.
"Heightened government involvement is typically a negative for all insurance sectors, as it raises the cost of doing business, the analysts wrote. "A move to a single-payer model would be transformational and likely quite negative for health insurers."
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If regulators decide to wade more into the market, they could take a close look at the high profits health insurers have posted amid the pandemic, according to the analysis.
Health plans have brought in sky-high profits this year as COVID-19 forced care deferrals and led utilization to plummet, especially in the early half of the year. These companies have also remained quite profitable as care utilization returns to near-pre-pandemic levels.
Congress is currently conducting an investigation into insurers' financial performance. The Fitch analysts said that while many companies have taken steps to pay back some of their profits, such as premium rebates, regulators could still step in.
"The impact is generally negative for all insurance sectors, but the magnitude will depend on actions insurers take to mitigate issues that could accentuate regulatory involvement," the analysts said.
Growing interest in tech and reimagined products are likely tailwinds, however, according to the report. For example, the pandemic has put a greater spotlight on the value of healthy living, managing chronic disease and avoiding the spread of the virus.
Digital transformation is more likely to go well for larger insurers, who can bear the upfront costs of investing in new technologies and can absorb the cost needed to build scale, according to the report.