How insurers take Covid-19 vaccination status into account when setting life and health premiums is fraught with issues, as Andrew Horne and Olivia de Pont of law firm Minter Ellison Rudd Watts point out in their firm’s latest newsletter.
Horne and de Pont say rating risk based on vaccination status is not a straightforward exercise as lapsed vaccination status and natural herd immunity may need to be considered.
“There are a number of obvious reasons why an insurer might take into account vaccination status when underwriting life and health cover,” they write.
“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.”
Horne and de Pont say an increase in premiums for the unvaccinated may encourage high vaccination rates.
“However, this also raises the question as to whether insurers should be taking into account other vaccinations an applicant has,” they write.
“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.”
Horne and de Pont also question if vaccination status is relevant to underwriting decisions when immunity may be gained from a previous infection of the virus.
“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,” they write.
“If regular booster vaccines are required to maintain immunity, then vaccination status would need to be reviewed regularly, increasing an insurer’s administration costs.”
As an alternative to increased premiums for the unvaccinated, Horne and de Pont suggest insurers consider an overall increase of insurance premiums that apply to all insureds.
“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,” they write.
Horne and de Pont conclude that the increased costs to insurers of the pandemic, and the risk of new infectious diseases, may warrant a re-think of risk for health and life insurance more generally.