Fitch: 5 long-term financial trends for health insurers

Health insurers can expect several factors, like interest rates, regulation and possible transformation of government healthcare, to negatively affect their credit in the long term, according to a new report from credit ratings agency Fitch Ratings.

For its report, Fitch analysts widened their usual three- to five-year outlook to predict what the coming decades hold for health insurer operations.

Here are five factors that will affect credit ratings:  

Negative

1. Low interest rates will force health insurers to rely even more on underwriting profits as their investment yields decrease. Insurers that have documented strong pricing and risk assessment will be the most successful, according to Fitch.

2. Regulators will likely take a closer look at health insurers' excess profits they recorded during the pandemic due to delayed and canceled medical procedures, tests and exams. While some health insurers have already returned some of these profits through premium rebates, "we would not be surprised if regulators at some point scrutinized the adequacy of such rebates, or if pricing is adjusted downward to reflect a new normal in some lines," Fitch analysts said. 

3. The 2020 election campaign brought more political and electorate calls for increased government participation in health insurance, particularly a single-payer system. Looking ahead, "a move to a single-payer model would be transformational and likely quite negative for health insurers," according to the report.

Positive

4. Fitch said the extreme events of 2020 increased recognition around the importance of having health insurance. Analysts said the risk of illness and hospitalization aids demand for health insurance.

Mixed 

5. The move to more virtual and technology-driven processes will have a mixed effect on insurers' long-term credit ratings, depending on their current digital capabilities. 

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