The Covid-19 pandemic is shining a glaring spotlight on the U.S. insurance industry. Health insurers have dealt with tests, treatments, and hospitalizations in ways that have left consumers confused and often downright frantic. Life insurers, confronting a virus about which the scientific community is still learning, have responded to an unprecedented challenge with no consistent strategy.
In 2020, as the virus was taking hold, many life insurers stopped issuing policies to people over a certain age and those with pre-existing conditions. Some companies stopped offering temporary coverage, which provides coverage during the underwriting process, and a number of companies actually refused to issue policies to individuals who had recovered from Covid-19.
While many carriers have started offering temporary coverage again, some still impose a 30-day waiting period following international travel and a number still will not write policies for Covid-19 survivors.
As we approach the end of a full pandemic year and as a growing percentage of the population becomes vaccinated, questions continue to hang over the industry. We see continued delays in the issuance of policies to healthy consumers who have traveled, as well as the denial of coverage to individuals who have recovered from the virus. Applications still include questions designed to ferret out information about exposure to the virus.
A Pandora’s Box
Covid-19 has been a Pandora’s box for life insurance companies. New applications have been on the rise during the pandemic, but carriers have been obligated to pay benefits under existing policies for Covid-19 deaths. Despite early concerns about high numbers of claims, such concerns have not been borne out, in large part because a disproportionate share of deaths have been in the traditionally underrepresented Black and Hispanic populations.
Market watchers now project that underwriters will start lowering rates for younger, healthier applicants and will expand the range of offerings not requiring physical exams.
All good news. So why are individuals who had Covid-19 but were asymptomatic or have completely recovered still being shut out of the market? These people presumably possess antibodies that make reinfection unlikely. Why would insurers disqualify them, and what recourse do these applicants have?
The Call for a Model Rule
On Feb. 1, the Consumer Federation of America (CFA) announced that it had called upon the National Association of Insurance Commissioners, as well as the CEOs of leading U.S. life insurance companies, to adopt a model rule designed to address this inequity.
Citing reports that insurers in Europe were denying coverage to Covid-19 survivors, the CFA’s director of insurance said, “People who had COVID-19 and recovered who need life insurance coverage to protect their families should be able to get it under clear underwriting rules publicly available for them to review.”
He asked state regulators to issue a rule promoting “transparency and reasonableness in underwriting” and protecting consumers from “arbitrary insurance company practices.” The CFA’s proposal would require underwriting rules relating to Covid-19 to be made public before they could be used and would establish reasonable standards as to what would trigger a delay or denial of coverage.
For Covid-19 survivors who are denied life insurance, the only recourse at present is to ask for a review, appeal the decision, or shop around. Although insurance laws are evolving, no laws prevent underwriters from denying coverage or an application due to Covid-19—unlike health insurers, who cannot deny coverage based on a preexisting condition.
In 1991, the NAIC created the Model Unfair Trade Practices Act, whose purpose is “to regulate trade practices in the business of insurance in accordance with the intent of Congress as expressed in the Unfair Trade Practices Act of 1945.” Forty-three states have adopted all or some provisions of the act, which defines unfair practices to include misrepresenting insurance policy provisions, failing to adopt and implement reasonable standards for the prompt investigation of claims, failing to acknowledge or act reasonably promptly when claims are presented; and refusing to pay claims without investigation.
No private cause of action is created for violation; state courts have empowered state regulatory authorities to discipline carriers.
Life insurance underwriters typically evaluate applicant information, including test results, before assigning a rating to the policy. Despite distinct underwriting guidelines, they have some autonomy to deviate from guidelines and make their own independent judgment. If an application is denied, the carrier must typically inform the applicant in writing and provide a summary of the reasons for the rejection.
Provided the insurer is not violating a law, such as one barring discrimination based on race, religion, or other protected class, it may decline an application and deny coverage for any reason. In Kotev v First Colony Life, a federal court in California ruled that the Americans With Disabilities Act covered life insurance carriers and applied to the discriminatory denial of insurance coverage.
States such as California have also enacted legislation prohibiting discrimination between individuals in the same class and with equal life expectancy in rates charged, benefits payable, or terms and conditions for insurance and annuities.
The CFA proposal would provide clarity and consistency to the life insurance application process, but it would not, by itself, require carriers to cover Covid-19 survivors. A better approach might be for states to enact legislation similar to California’s SB 961, which seeks to end coverage denial based solely on a positive HIV test.
HIV-positive individuals are living longer, healthier lives and—like the millions who have recovered from Covid-19 and resumed healthy lives—need life insurance to protect their loved ones.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Houman Sayaghi is a litigation attorney at West Coast Trial Lawyers in Los Angeles and represents clients in all aspects of personal injury cases, including civil litigation, arbitration, trials, and appeals.