How Covid has changed life insurance underwriting

As Americans prepare for the third winter of the Covid-19 pandemic, many are still struggling with ongoing health and financial issues, including lengthy Covid treatments and insurance battles related to disability claims.

But for the life insurance industry, experts say the long-term effects are still unknown.

“It’s a work in progress,” explained Michelle Leonard, chief economist and data scientist at the Insurance Information Institute. “At the moment there are not enough statistics.”

Faced with a staggering loss of life, insurance companies have seen premiums rise during the pandemic.

According to the American Council of Life Insurers, US life insurers paid out more than $90 billion to beneficiaries in 2020, a 15.4% increase in payments compared to 2019.

According to the organization’s latest report, payments to beneficiaries will increase by about 11% to exceed $100 billion in 2021.

As consumers rushed to protect their loved ones, so did the demand for life insurance policies.

According to the MIB Life Index 2021 report, individual life insurance application activity in the US grew 3.4% in 2021, following a record-breaking 3.9% annual growth in 2020.

However, the life insurance industry is still grappling with mortality changes and how those changes may affect the underwriting process.

Stuart Silverman, principal and consulting actuary at Milliman, an actuarial and consulting firm, said in an article he co-authored in June that the Covid-19 pandemic is affecting the life insurance industry in several ways.

Two areas to consider are predictions of mortality rates and “mortality assumptions,” which are the “capital requirements” needed to keep life insurance providers solvent. Both can affect the cost of policy premiums, he said.

Although it is clear that death rates have increased since the beginning of the pandemic, experts do not yet know how the factors related to Covid. According to the paper, pre-existing conditions, impaired mental health or delayed care can affect future prognosis.

“I think there’s uncertainty about how it’s going to develop,” Silverman said, noting there are “ongoing discussions” about many of these points.

Future mortality prospects are bleak for those suffering from so-called prolonged Covid, a term used to describe long-lasting health problems after contracting the virus.

These conditions affect an estimated 7.7 million to 23 million Americans, according to a report released Nov. 21 by the U.S. Department of Health and Human Services.

“It’s really hard to underwrite something that you don’t have a clear way to diagnose and define,” said Marianne Purushotham, corporate vice president and head of information services at the Life Insurance and Marketing Research Association.

Overall, the life insurance industry is “in a phase of basic data collection,” Purushotham said, adding that it is gathering information on all the ways Covid can affect mortality, including indirect effects such as opioid overdose and suicide rates.

One of the “big considerations” is whether the effects are a long-term trend, he said, noting that companies may be reluctant to change prices if the death toll returns to “where it was before Covid”.

“It will take five to 10 years before we fully understand what patterns we’re starting to see,” Silverman added.

While it takes time to update mortality assumptions, experts say life insurance applications have been changed more quickly under state regulations.

Consumer advocate Brendan Bridgeland, policy director and staff attorney at the Center for Insurance Studies, has seen Covid questions appearing on life insurance applications since the start of the pandemic, and expects more in the future. For example, some companies ask questions about your history of testing positive for a disease and whether you have a current diagnosis.

“States are still dealing with it,” he said. “Companies quickly added application questions.

“But I don’t think they’ve improved yet,” Bridgeland added.

“Even though you don’t see the vaccination question in the life insurance application yet, it will be much more likely in two to three years,” Bridgeland said. “I see it on the horizon and I think it’s going to be inevitable,” he said.

“There’s a lot of variation in the questions that life insurers are asking right now,” Bridgeland said. “Some are very meaningful, others are very vague and a little uncomfortable.”

With a lack of consistency among providers, he worries about the potential for consumers to misread the question and answer it incorrectly.

Bridgeland said if the provider discovers an inaccuracy, it has a chance to refund your premiums rather than paying your loved ones a death benefit.

Ask your insurance broker or provider for clarification to avoid mistakes, he said. “Just take your time, make sure you understand the questions and answer them correctly,” Bridgeland said.

In January 2021, the Consumer Federation of America sent a letter to the National Association of Insurance Commissioners, asking the organization to adopt a model rule for life insurance underwriters who “may delay or deny coverage” to applicants who have or have had Covid-19. .

In relation to life insurance underwriting changes in Europe, the Consumer Federation of America called for rules to be “fully transparent” and “meet standards of reasonableness” for applicants who may face Covid-related delays or denials.

“This rule is also important for existing policyholders who are considering suspending coverage to save some money to help their family cope with the economic fallout of Covid-19,” the letter said. “These policyholders should be aware of the potential danger of such action.”

The CFA also sent a letter to major life insurers asking them to “voluntarily make their Covid underwriting rules open and reasonable”.

Although the NAIC filed a letter during its 2021 spring meeting, the organization did not have enough information to consider supporting the model rule, a spokesperson for the National Association of Insurance Commissioners told CNBC.