Life insurance companies are in the business of assessing risk. As such, they are closing monitoring the coronavirus situation so they can take necessary action.
In fact, some carriers are already starting to act, and more will likely follow.
Here’s what life insurance companies have done and what could be done to combat this unusual threat.
Some insurance carriers are have begun adding exclusion riders on newly issued policies. Basically, this means they issue the life insurance contract, but they include dialogue that specifically voids them of liability if the cause of death has any relation to the Covid-19 virus.
An exclusion rider would read something like:
This Insurance does not cover any claim in any way caused by or resulting from:
- Coronavirus disease (COVID-19)
- Severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2)
- Any mutation or variation of SARS-CoV-2
An exclusion rider such as this could become an industry standard if the morbidity rate causes carriers to experience detrimental financial losses due to an unexpected and unsustainable claims rate.
Another action that carriers are considering is a putting forth a temporary hiatus on new business.
If this happens, the insurance company(s) would simply stop accepting new applications. Since the virus is causing of a temporary mortality rate significantly higher than the mean, this would prevent them from creating a block of business that would result in a loss with the potential to jeopardize the profitability of an entire line of business.
A new application hiatus could apply to all lines of life business or to specific products. In reality, a carrier would likely target specific life products that are most likely to have a consumer base most venerable to death from the virus.
For example, elderly citizens who have pre-existing conditions such as COPD, heart disease, or kidney disease are significantly more likely to die from the virus. If a carrier has a product line that attracts applicants who have said conditions, they may choose to limit sales from that particular product due to the substantially increased risk. Whereas, other product lines without said applicants will still be available since the consumer base doesn’t necessarily pose an unusual risk outside of the norm.
As of now, there aren’t any carriers that have taken this action, but some executives at major life insurance carriers have said it’s an action they’ll consider if the death rate exceeds certain thresholds.
If this were to happen, the hiatus would likely only last until a vaccine was developed. At that point, the mortality rate of the general public would fall in line with standard CSO models, and it would no longer be an increased risk to accept new applicants.