Life insurers get tough on risk assessment as second Covid-19 wave bites

Impose 'postponement period' for recovered Covid patients, tighten underwriting standards

Life insurers are stepping up scrutiny of policyholders’ term plans and are postponing insurance requests of Covid survivors as the deadly second wave continues to batter the country.

“It appears because of Covid, some have tightened their underwriting standards,” said Subhash Chandra Khuntia, former Irdai chairman. 

Term plans insure a person’s life for a huge cover amount but the premium on these policies is small.

Insurers, in turn, insure their risk with reinsurers, who also drive the price and the underwriting norms for such products. Experts said every time a new disease comes up, the underwriting process changes a little in that insurers either ask for additional medical tests or postpone the existing proposal.

Even for health policies, general and standalone health insurers have imposed a waiting period for patients who have recovered from Covid.

The “cooling off” period varies from 45 days to 90, depending on the insurer. “If a customer has declared himself as Covid positive, we have a three-month ‘postponement’ period post-recovery,” said Rushabh Gandhi, Deputy CEO, India first Life Insurance. “Once this period is over, we ask the customer to share certain reports or we may conduct some medical tests. If the test reports are okay, we issue the policy. This is applicable for both term and non-term policies.”

There is no change if the customer has not been infected with Covid.

Avdhesh Gupta, appointed actuary, Bajaj Allianz Life, said his firm is following a similar process.

 HDFC Life said it recommends a period of convalescence for recovery. This period depends on the severity of the same and each proposal is independently underwritten. Most disclosure forms now include Covid-related questions though the changes in underwriting vary from insurer to insurer.

While some have increased the income requirement necessary to get a term plan from Rs 3 lakh to Rs 5 lakh, a few have mandated physical medical reports for customers to get a policy. Earlier, insurers were accepting telemedicals.

Also, some insurers have stopped term plans for people beyond a certain age.  Khuntia said: “Since life insurance companies insure their risks with reinsurers, a part of it is also influenced by the stance the reinsurers are taking. Life companies have not been severely affected by Covid so I think it is a bit premature for them... It is better if they allow some time to pass.”

“The waiting period (in the case of life insurers) is not an industry-wide phenomenon. So, if some companies have too long a period, they may find it difficult to sell their products. And, if it is very unreasonable, then the regulator will step in,” he added. 

Insurance, as a business, is about risk pricing so if insurers are unsure of the risk they are underwriting, the norms will definitely get stricter, said experts. 

After the cooling-off period, the customer must file a fresh proposal form. “Generally, the proposal form asks if any past policies are issued with an extra premium or have been declined or postponed. An answer of YES to this question attracts tighter scrutiny or additional details being asked,” said Sajja Praveen Chowdary, head of term life insurance at Policybazaar.com.

According to rough estimates, life insurers have paid close to Rs 2,000 crore in Covid-related death claims till April. The amount is expected to go up due to the alarming increase in the number of deaths during the second Covid wave.

Hence, the caution on the part of insurers and reinsurers is understandable, say experts.