Underwriting the unvaccinated: Rating risk in a pandemic

A person’s COVID-19 vaccination status and how they may be treated as a result has become an increasingly controversial topic. Among other issues, it raises the question of how insurers may take vaccination status into account when underwriting life and health insurance cover.

Some American employers, such as Delta Airlines, have increased the health insurance premiums payable by unvaccinated employees. Legal and General, a UK insurer and financial services provider, has said that high risk applicants are having their applications for new life insurance postponed for 12 months unless they provide proof of vaccination. A New Zealand insurer, Partners Life, has also commented that it may take into account insureds’ vaccination status when underwriting health and life insurance. However, rating applicants’ and insureds’ risk based on vaccination status is not a straightforward exercise.

Challenges for rating risk based on vaccination status

There are a number of obvious reasons why an insurer might take into account vaccination status when underwriting life and health cover. Insurers routinely take into account other behaviours and status when underwriting these types of risk, such as whether an applicant smokes and how much an applicant drinks. Vaccination status may be taken into account as another indicator of risk. Being vaccinated against COVID-19 may also correlate with an increased willingness to take other vaccines, or take medical advice and assistance more generally, thereby reducing an individual’s exposure to other diseases and health risks. An increase in premiums for the unvaccinated may also encourage applicants to get vaccinated, which may reduce the overall risk to the population and an insurer’s client base.

However, this also raises the question as to whether insurers should be taking into account other vaccinations an applicant has. It also raises questions about whether it is worth modifying underwriting practices at all in circumstances where the variant of COVID-19 that is currently dominant is both less responsive to the vaccines currently available and may be less likely to result in serious illness or death than earlier variants.

Other challenges for underwriters to consider include:

  • Unlike chronic health conditions, the risk presented by COVID-19 may initially be high and decline over time as less virulent strains of the virus take over and vaccination rates increase. It may not be worth making long-term changes to how risk is underwritten in circumstances where the risk posed by COVID-19 may be relatively short-term compared to permanently dangerous diseases such as polio and measles.
  • If vaccination status is relevant to underwriting decisions, should immunity gained through a prior infection also be relevant?
  • Vaccination status does not, on its own, define an individual’s risk of becoming seriously ill or dying of COVID-19, which is influenced by other comorbidities and the likelihood of being exposed to the virus – which may be influenced by overall vaccination rates in a particular area. If vaccination levels in a particular area are high, then there may be little to be gained by adding vaccination status as a rating factor.
  • If regular booster vaccines are required to maintain immunity, then vaccination status would need to be reviewed regularly, increasing an insurer’s administration costs.

Alternatives to premium increases

There are a number of alternatives to premium increases based on vaccination status that insurers may consider. Insurers could consider an overall increase in life and health insurance premiums, regardless of vaccination status. This would be less difficult to implement than differentiating between applicants and insureds based on vaccination status and may help an insurer prepare financially for the possibility of future pandemics. However, unless such an approach is adopted across the industry, an overall increase in premiums may disadvantage an individual insurer, as vaccinated applicants may be able to obtain cheaper insurance elsewhere.

Insurers may also, as suggested by Willowgrove Consulting’s Jon-Paul Hale, address the COVID-19 risk by offering product discounts for the vaccinated or loadings for the unvaccinated. They may consider policy exclusions and term limitations for the unvaccinated and reducing exclusions, such as waiting periods, for the vaccinated or offering rewards points. For unvaccinated applicants with other co-morbidities, insurers may decline cover altogether.

Conclusion

The relevance of vaccination status to underwriting risk raises complex issues as to how to fairly rate risk in a pandemic, in circumstances where the nature of the risk is constantly evolving. We may be more likely to see policy exclusions for the unvaccinated and incentives for the vaccinated to address the current risk, with overall premium increases for all insureds in the long-term. The increased costs to insurers occasioned by the pandemic and the risk of new infectious diseases emerging in future may warrant a re-think of risk for health and life insurance more generally.

Read Cover to Cover – Issue 24

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