Life insurance. It’s a curious old business.
The customer buys a product and reduces their risk. The provider selling that policy takes on increased risk. Guaranteed risk, too, because, all else equal, the death benefit pays out inevitably. A difficult business to explain, life insurance.
Let’s now make the acquaintance of an advocacy group, the Consumer Federation of America, who’ve recently directed words at insurance companies.
CFA was formed in 1968. A good vintage for liberals, I remember it well: I wore a Hubert H. Humphrey button to school – ‘HHH’ – on photo day; mother said, “I better not see that crazy thing in your picture.” CFA comprises 300 members, all nonprofits. It petitions federal and state officials to adopt pro-consumer policies and works at the grassroots level with consumer movements, which also sprang up widely in the late 1960s and early ‘70s. CFA is a respectable organization, says my deep DNA.
On January 28, CFA sent a letter to the National Association of Insurance Commissioners. Formed by state insurance commissioners in 1871, NAIC sets industry standards and supports regulators across all US states and territories. In its communication, CFA asked the NAIC to adopt a rule governing the issuance of life insurance to survivors of Covid-19.
CFA wants NAIC to develop a model rule for state insurance regulators, which would call for two things: first, any underwriting rules related to Covid cases must be made public before establishment; second, reasonable standards should be set to define why a Covid survivor might face delay or policy denial after application for life coverage.
In Europe, certain insurers have reportedly been delaying applications or denying policies to former coronavirus patients. CFA doesn’t want that happening here.
I’m not casting these vague Europeans as villains, and I’m not sure CFA intends to, either: the industry’s Covid-related problems are real. People of a certain age, now generally in authority positions, are scarred by memories of the AIDS epidemic, a scourge outright terrifying. People in high-risk groups then faced similar restrictive practices, and those with the virus – it was barely controllable at the time – sometimes even had health insurance cancelled. Those were unhappy days and we don’t want them back.
NAIC has not yet replied, and indeed on last comment had not formally received the letter. With the pandemic ongoing, we can expect to hear from them presently, with or without external prompting.
CFA says it worries about “arbitrary or unfair” underwriting practices imposed by ill-informed or overly cautious insurers. They aren’t fire-branding, from what I can see: CFA concedes that “reasonable precautions by life insurers are understandable.” They simply want fairness and justice for coronavirus survivors and transparency in rules to protect consumers.
There’s another concern here, which CFA points outs: cash-short consumers who’ve ditched their life insurance to save money. Understandable in these cash-strapped days, but deeply unwise – and that’s me talking. If a policyholder drops coverage and is then infected with Covid, CFA fears they might have trouble reinsuring themselves later.
I see a deeper concern nestled in this scenario. Forgive my indelicacy, but the midst of a pandemic is no time to jettison one’s life insurance coverage.
Consumer advocates have already questioned insurers’ practice of asking Covid-related questions on life policy applications. This criticism is unfounded, as the practice is industry standard. If you don’t enjoy intimate questioning on the state of your innards, get ready for blushing when the insurance agent comes calling. If you want life coverage, all must be revealed.
Insurers need health information to determine your premiums. For under-the-rock dwellers, that’s what insurance companies do: you set the odds, as it were, via lifestyle and health; they set the price. It may seem unfair; no one invites in a virus, say. Yet riddle thee this: why should you, a healthy 30-year old, pay the same rate as a deskbound, lounge-around pudding like me? You’re the better risk, so you pay less. It’s fairness personified, though I concede it sounds just a touch cold.
But it isn’t: the insurance industry is in a bind with coronavirus. Just how virulent is this disease? Actuarial tables are rooted in data, yet what we have today is confusing, counterintuitive and still incomplete. What are insurers to do?
Global data is opaque, but still riveting. Cambodia has had zero deaths; around 400 cases, all recovered. The United States, a global power, has suffered nearly 490,000 deaths and counting. The case fatality rate – that’s the proportion of deaths to the number of people diagnosed – ranges from 0.2% in Burundi to 2.5% in Argentina; 4.4% in Afghanistan versus 29% in Yemen. Most countries experience a rate around 2.0% (US: 1.8%). All data is preliminary and the final totals won’t be known for years.
Insurance is a business – an odd one, as noted. No matter the risk, providers always want more clients; they lose sleep over the uncovered masses. Insurers want your risk, within bounds of reason and complex actuarial formulations. But if they don’t have accurate data, they don’t know who’s insurable or how much to charge.
Right now, nobody knows how badly coronavirus can damage future health. The Centers for Disease Control and Prevention (CDC) believe long-term symptoms might include ‘minor’ issues like muscle pain, fever and depression; longer term, they see evidence of cardiovascular inflammation, lung damage, renal problems, nerve damage and more.
“The long-term significance of these events is not yet known,” says the CDC. If they don’t know, what can insurers fathom? I hope the public understands our quandary, listens to our explanations, and avoids questioning our humanity, so common today. Insurance is a people business and we have a deep interest in fairness – like a good neighbor, as some may have heard.
60 Year Old Male with Cancer Needing $1M of Coverage
- 2019 had Gleason 3+4/Stage 2 prostate cancer
- Cavalier Associates shopped the case out and was getting postpones or large flat extras. Our underwriting team stepped in and knew that Lincoln would be a player.
- Because the insured had a prostatectomy and the Gleason Score was no worse than 3+4 and the margins were clean, Lincoln was able to use their prostate cancer niche and go STD with no flat extra.
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