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How Covid has modified life insurance underwriting

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Family and friends gather in San Felipe, Texas, for the Jan. 26, 2021, funeral of Gregory Blanks, 50, who died of Covid-19.

Callaghan O’Hare | Reuters

As Americans brace for the third winter of the Covid-19 pandemic, many are still grappling with ongoing related health and financial issues — including insurance battles over long Covid treatments and disability claims. 

But for the life insurance industry, experts say the long-term effects aren’t yet known.

“It’s a piece in progress,” explained Michel Leonard, chief economist and data scientist on the Insurance Information Institute. “There’s not enough statistical data at this point.”

Faced with a staggering lack of life, insurance firms saw payouts soar in the course of the pandemic.

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Here’s a take a look at more stories on the complexities and implications of long Covid:

U.S. life insurers paid greater than $90 billion to beneficiaries in 2020, a 15.4% increase in payments in comparison with 2019 — the most important year-over-year jump because the 1918 influenza epidemic, according to data from the American Council of Life Insurers.  

Payouts to beneficiaries increased by nearly 11% in 2021, jumping to over $100 billion, the organization’s latest report shows.

The demand for all times insurance policies also jumped as consumers rushed to guard family members. 

Individual U.S life insurance application activity increased by 3.4% in 2021, following a record-breaking year-over-year growth of three.9% in 2020, in line with the MIB Life Index’s 2021 annual report.

Nonetheless, the life insurance industry remains to be wrestling with mortality changes and the way these shifts may affect the underwriting process. 

There’s still ‘uncertainty’ about mortality

Stuart Silverman, principal and consulting actuary at Milliman, an actuarial and consulting firm, said the Covid-19 pandemic has affected the life insurance industry in several ways, as outlined in a paper he co-authored in June.

Two areas of consideration are “mortality assumptions,” that are projections of death rates and the “capital requirements” needed to maintain life insurance providers solvent. Each can factor into the value of policy premiums, he said.

While it’s clear mortality rates have increased because the starting of the pandemic, experts do not know yet how aspects related to Covid like preexisting conditions, compromised mental health or delayed care may affect future assumptions, in line with the paper.   

“I feel there’s uncertainty with how this can unfold,” said Silverman, noting there’s “ongoing debate” on a lot of these points.

How ‘long Covid’ affects mortality assumptions

Future mortality assumptions are murky for many who could also be affected by so-called long Covid, one among the terms used to explain lingering health problems after contracting the virus.

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

“It’s really difficult to underwrite for something that you simply do not have a transparent strategy to diagnose and define,” said Marianne Purushotham, corporate vice chairman and head of the Life Insurance and Marketing Research Association’s data services.

It may take five to 10 years for us to totally understand what patterns we’re beginning to see.

Marianne Purushotham

Corporate vice chairman and head of the Life Insurance and Market Research Association’s data services

Overall, the life insurance industry is in a “major data gathering stage,” Purushotham said, collecting information on all of the ways Covid could also be affecting mortality, including indirect effects like opioid overdoses and suicide rates.  

She said one among the “big considerations” is whether or not impacts shall be a long-term trend, noting that firms may not want to alter pricing if mortality “settles into where it was pre-Covid.” 

“It may take five to 10 years for us to totally understand what patterns we’re beginning to see,” Silverman added.

Applications may include Covid questions

While updates to mortality assumptions may take time, experts say life insurance applications have been quicker to alter, depending on state regulations. 

Consumer advocate Brendan Bridgeland, policy director and staff attorney on the Center for Insurance Research, has noticed Covid questions appearing on life insurance applications because the starting of the pandemic and expects more in the long run. For instance, some firms ask questions on your history of testing positive for the disease and if you will have a current diagnosis.

“States are still coming to grips with it,” he said. “Firms have been quick so as to add application questions.

“But I do not think they have been perfected yet,” Bridgeland added.

“While you might not see a vaccine query on a life insurance application yet, it’s more likely two to 3 years from now,” Bridgeland said. “I can see that on the horizon and I feel that is going to be inevitable,” he added.

“There are very big differences between the questions asked by life insurers straight away,” Bridgeland said. “Some make plenty of sense and others are very vague and barely concerning.”

With an absence of consistency across providers, he worries there’s potential for consumers to misread a matter and answer it incorrectly.

If a provider finds inaccuracies, there is a likelihood they’ll return your premiums moderately than pay the death profit to your family members, Bridgeland said.

To avoid mistakes, ask for clarification from an insurance broker or the provider, he said. “Just take your time, be sure you understand the questions and answer them truthfully,” Bridgeland said.

Regulatory guidance is pending

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 all times insurance underwriters who may “delay or deny coverage” to applicants who’ve or have had Covid-19.

Prompted by life insurance underwriting changes in Europe, the Consumer Federation of America requested that the principles be “totally transparent” and “meet standards for reasonability” for applicants who may experience Covid-related delays or denials.

“This rule can also be vital for current policyholders who could also be considering dropping their coverage for a period to save lots of some money to assist the family get through the economic consequences of Covid-19,” the letter said. “These policyholders must know the possible danger of such motion.” 

The CFA also sent the letter to major life insurance firms, asking for them to “voluntarily make Covid underwriting rules public and reasonable.” 

While the NAIC addressed the letter during their spring 2021 meeting, the organization didn’t have enough information to contemplate supporting a model rule, a spokesperson for the National Association of Insurance Commissioners told CNBC.  

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