The Impact Of COVID-19 On Impaired Risk Underwriting


An alarming situation. When COVID-19 arrived on the U.S. shores earlier this year, it caught both the public and our leaders by surprise. In the pandemic’s early days, scientists warned that there could be a potential for millions of deaths across the nation. The prospects were frightening but, fortunately, the threats did not materialize as our people took unusual (for Americans) precautions to stem the spread of the virus and avert the original reports’ dire projections.

This specific coronavirus came to us with many uncertainties about how it could affect the population and how we should respond. Americans were put on lockdown or sheltered-in-place in most states. Face masks, hand washing, travel cessation, and social distancing appeared to help stem the growth and spread of COVID-19. Most individuals and states embraced these steps as responsible and appropriate measures to protect ourselves, families, and others.

Life insurers were prepared to embrace the COVID-19 challenge. Most carriers had pre-planned models and analytics ready for such an eventuality. The companies immediately calibrated their responses to the pandemic and responded with their own versions of shutdowns through product withdrawals, price increases in some cases, age limitations, offer restrictions, and postpones for clients with pre-existing conditions.

With its own unique signature, the pandemic arrived without an instruction book for managing it. As a result, uncertainty persists how it might evolve, how pervasive it could become, and how long it will be with us as a threat to our lifestyles and livelihoods.

Mortality projection assessments were made based on disease findings from other countries. These findings pointed out that the mortality impact from various impairments such as cardiac, diabetes, chronic respiratory disease, high blood pressure, cancer, obesity, and other pre-existing conditions would project a greater number of deaths for these groups. Each of the impairments was weighted more or less the same in terms of mortality when infected with COVID-19.

The pandemic also arrived without much in the way of a serious head’s up about its risk potential or its impact on our everyday lives. However, insurers are in the business of looking for risks. Most were spot on with prompt measures and new rules of engagement for COVID-19 underwriting guidelines and restrictions.

The guidelines were varied and unique to each carrier’s product offerings, market and specific needs. By this past mid-March, most companies had age and impairment restrictions for policy approvals. Recently, there’s been an easing as a few carriers re-opened their offerings for the senior (up to age 80) marketplace.

Even so, it became clear that older clients with impairments were at substantially greater risk than the rest of the population. Middle age clients with pre-existing conditions were also a significant risk. Older age and healthy clients offer substantially less risk than others with pre-existing conditions.

What the pandemic changed
Based on this background, here is what changed as a result of the pandemic:

  1. Age restrictions for applicants applying at age 70-80, depending on the insurance company involved. If you have clients who are over these ages for those carriers, they need not apply at this time for coverage.

2. Rated cases will be declined more frequently than before the pandemic. The greater the rating and the older the client, the more likely the case will be declined. For example, expect a declination of a 75-year-old who is not standard, when previously the carrier would accept an applicant of the same age up to table four. A client in their 50s who is a table four would now be considered a declination with most carriers.

3. Specific carrier retention for an individual risk may, for example, be cut from $20 million to $10 million. When larger face amounts are involved, it’s wise to ask if full retention is available or whether or not they have a revised lower retention while dealing with COVID-19.

4. Reinsurance and jumbo maximum cases will have less available coverage. As usual, these cases need special attention in light of the new limitations.

5. More logistical delays as a result of remote work and more complicated cases. Even though company underwriters have/had been working remotely for many years, it takes longer for cases to be set up and written, and then printed and sent. Cases are more complex given COVID-19 concerns and this also extends usual processing times.

6. New requirements for case submission and policy placement. New questions concerning COVID-19 are asked on points relating to household members, travel by the insured and the insured’s family members, contact with others who have been infected with the virus, and general lifestyle issues that may be of concern to the carrier.

7. Face-to-face meetings with clients and prospects are less likely. Virtual meetings using Zoom or other platforms are effective alternatives, as well as an efficient way to use an advisor’s time. However, a major challenge occurs when clients reject the need for an insurance exam for fear of putting themselves in jeopardy of infection. It’s the impaired risk or older clients who need the exam to satisfy the underwriting requirements.

8. Examination and paramedical vendors are challenged and stressed. Clients don’t want to see their insurance prospects affected by being put at risk for contracting the coronavirus. At the same time, the employees and parameds are equally concerned about being at risk by examining someone who may infect them.

Consequently, when employees choose not to perform exams their employers are left short-handed and may have difficulty taking proper steps to protect themselves. Cleanliness and the proper protective gear are critical for these firms and their insurance clients. Anecdotally, one of the larger paramedic firms announced that it was closing down abruptly after decades of service to the life insurance industry.

9. Difficulty serving life insurance needs of U.S. citizens stuck in other countries such as Canada, China, Colombia (SA) and many others, who can’t get back given travel restrictions. A large number of them have reached out to see if they can buy insurance while waiting to get back home.

10. The market of foreign nationals living abroad, which has been significant in recent years, has all but dried up for now. In addition, those foreign nationals that are in the U.S. are unable to secure as much coverage as they would have been able to obtain before the pandemic struck.

11. Fluidless and no-exam programs affected. Application counts slowed substantially during the early period of the pandemic. To stimulate more activity, most insurance companies either relaxed their fluidless/exam-free programs or quickly rolled out new programs that had been in development for years. Some carriers with $1 million offerings either doubled or tripled face amounts or jumped to $5 million per applicant depending on age. To give these programs traction, insurance companies improved front end electronic submissions, and e-delivery, as well as streamlined their offerings.

Most insurance companies and major reinsurance carriers have published guidelines regarding COVID-19. Clearly, they are a work-in-progress as information is gained as the pandemic evolves.

12. Use of a COVID-19 risk assessment questionnaire when talking with clients. Based on our experience with carriers, our company developed a tool that works well when addressing COVID-19 underwriting concerns with clients. It helps in pre-qualifying the risk, averts unnecessary delays, and avoids embarrassment. In addition, we have a “Carrier Summary” of how each company treats COVID-19 risks. (Both are available without charge.)

Case histories tell the story
To summarize the way carriers currently view life insurance applications in the COVID-19 environment, here are case examples:

  1. A prospective client, male, 46, who is a hospital worker, tested positive for COVID-19, was treated with Hydroxychloroquinine, and went back to work after being symptom-free for 14 days. The insurance company took him at preferred rates after 30 days of symptom-free status. The client was tested and found to have a huge number of antibodies for the disease.

2. We shopped a male, 45 years old, six feet, 325 pounds, with controlled blood pressure and cholesterol. He was given a table six. If he had presented at 328 pounds, the carrier would have had to decline to offer due to COVID-19. There were no other offers.

3. Impaired risk cases that are normally offered with moderate ratings can experience a wide range of offers. A male, age 62, with controlled type II diabetes with an a1c hemoglobin of 7.0 and a build of six feet tall. and 278 pounds could normally be considered as a table two. A few carriers offered at table two, while others offered at table three citing COVID-19. Roughly half of the carriers wanted to postpone their decision.

4. Another client presented with daily vaping of marijuana, as well as a pulmonary nodule. With the exception of one carrier, all others would not make an offer given the COVID-19 environment. Remarkably, one lone carrier offered at table three nonsmoker rates.

A heightened concern for our health when we’re under stress is normal. It’s also a time when we are more highly motivated to take special care of ourselves and our families, including the purchase of life insurance.

Although some people may be concerned about being delayed or declined coverage because of the pandemic, it’s clear that some who apply are securing coverage. This is one reason why it behooves advisors to be familiar with changes in underwriting requirements as carriers respond to the latest data.

Allan D. Gersten, CLU, ChFC, CFP®, is chairman of First American Insurance Underwriters, Inc., an insurance brokerage that specializes in supporting agents with life insurance, long term care and annuity products.

Gersten can be contacted via telephone at 781-449-6800. Email: