Are Life Insurers Profiting from COVID-19?
Last week I wrote to the BC Health and Finance Ministers asking them to take action to force Canadian Life insurance companies doing business in BC to accept fluid test results provided by insurance customers. Read our May 22 blog post for more details here. Being a cynic at times, I think about the potential for abuses that can take place under the guise of altruistic ideals. In the case of Canadian life insurance companies not accepting fluid results there is a motive that even the most cynical of us don’t want to believe but we have to look at it. Canadian life insurance companies can profit from their restrictions and if they profit in any way by slowing down the lifting of restrictions it is unconscionable. The example outlined in this letter to the BC Finance Minister outlines a situation where Canadian life insurance companies can profit from COVID-19. The only way we can be assured they will not profit is for them to stop restricting the acceptance of fluid test results, immediately, and refund all over paid premiums that customers have incurred due to forced renewal of term policies. Here is my second letter sent to Finance Minister Carole James and Health Minister Adrian Dix. I have requested a meeting to talk to Finance Minister James about this issue. I will report back to let you know the outcome of my efforts.
May 25, 2020
Hon. Carole James
Hon. Minister Carole James
Minister of Health and Deputy Premier
Room 153 Parliament Buildings
Victoria, BC V8V 1X4
Hon. Adrian Dix
Minister of Health
Room 337 Parliament Buildings
Victoria, BC V8V 1X
Dear Ministers James and Dix,
In the letter sent to you dated May 22, 2020, I outlined the issue of Canadian insurance companies refusing to accept test results from insurance customers. I am following up that letter with new information about how insurance companies can profit from these restrictions during this COVID-19 pandemic.
Policy holders in Canada who bought a 10-year term policy in 2010 face the renewal of that policy in 2020. A 10-year term policy is one that has a level premium for the first ten years; then, they increase to a new, much higher premium that remains level for the next ten years. The renewal premiums in the 11th year are seven times higher than the first ten-year premium. The normal course of action to avoid this extreme increase in premium is for the insurance broker to shop the market and apply for new replacement coverage for the policy holder with the same or another insurer. If the policy holder is healthy, the replacement coverage is much less expensive than the guaranteed rate of the original policy.
This is an actual example of a situation we are dealing with:
A small British Columbia business needed insurance on the shareholders of the business to secure debt and meet other obligations. One of those shareholders was a male, age 55, in good health as of 2010. He was issued a $4,500,000 policy in July 2010, with a level premium for 10 years of $8,000 per year. The guaranteed renewal rate for that policy in the 11th year is $65,300 per year for the subsequent ten years. That is 8 times the original premium. A new policy that is fully underwritten, assuming he is healthy, is $28,242 or $37,000 less per year than the original policy.
To determine if this shareholder is healthy enough to re-qualify for a new policy, at the lower rate, he is required to pass a paramedical exam, which includes a blood and urine test. Under the current restrictions, imposed by the insurance companies, it is not possible for this person to provide blood and urine test results if those tests were conducted after March 24, 2020, even if he is able to get the tests done.
Because insurance companies are not accepting test results, the policy owner will not be able to have the policy reissued at a lower rate and will be forced to keep the insurance in force at the much higher premium. The insurance companies will realize a windfall of approximately $37,000 from this one case alone. We have three insured people in this one business who must renew their policies by June or face these higher premiums.
The business is free to cancel the policy if they do not agree with the increase; however, as is the case in thousands of situations in Canada, the business that owns the policy is required to insure this shareholder under a binding agreement. The business that is insuring this shareholder is required, under their agreement, to make all reasonable efforts to insure this person for the amount of insurance required by the agreement. If the business cancels the policy to save the money, they will be in violation of the agreement.
All Canadian insurance companies issue this type of 10-year term insurance. All companies have policy holders whose policies are renewing in 2020. All policy holders who are required to provide blood and urine test results in order to qualify for new coverage to replace the renewing coverage will not be able to get the new insurance at the lower premium, even if they are otherwise medically healthy. I see this as an unethical way for insurance companies to profit from the COVID-19 pandemic resulting from restrictions they imposed in response to the COVID-19 pandemic.
For this profit-model to work, the insurance companies must all agree not to accept blood and urine test results. If they did not work together, one insurance company who accepts test results would benefit by taking business away from all the companies that are restricting the acceptance of results. This is, to me, collusion by the insurance companies, along with the Canadian Life and Health Insurance Association, to restrict the acceptance of blood and urine test results.
This could also be a reason why the insurance companies have conspired to pressure the paramedic vendors to cease providing sample collection services to all companies in Canada. Because vendors are not being allowed to do blood and urine testing, even those companies, that did not agree with the approach of the majority of companies, are now prevented from taking business away from the insurance carriers that are restricting acceptance of the test results.
When you consider how many 10-year term policies are in place in Canada and that approximately 1/10 of those policies will renew in every year including 2020, the potential windfall for the insurance companies is significant. For every month that those higher guaranteed renewal premiums are paid, the additional profit that will go straight to the bottom line can be significant. Insurers have not accepted test results since March 24, 2020 so we are now three months behind in policy renewals.
A great way to pad the bottom line, even if it is for a short time.
Insurance companies’ refusal to accept test results is causing unneeded stress for business owners who are already under the pressure of keeping their businesses running and staff employed during this COVID-19 pandemic. They need your help in making insurance companies act quickly to resolve this issue. Please order insurance companies to accept test results. Your immediate attention on this matter would be appreciated. I am requesting a meeting to discuss this issue with you through your office and look forward to the opportunity to speak with you directly.
Bernie Geiss CLU CFP TEP CHS
President and Founder
Cove Continuity Advisors Inc. is a Certified B Corp offering life and health insurance products and planning services based in North Vancouver, BC. Cove was the recipient of the 2018 Business of The Year Award for North Vancouver and the recipient of Best For World for Workers Award for 2016, 2017, and 2019 by the nonprofit certifying body, B Lab. Cove is a member of 1% For The Planet and founded 1% For People, committing Cove to a minimum financial contribution of 1% of gross revenues to combat social injustice and climate change. Bernie Geiss was instrumental in the passing of Canada’s first Benefit Company legislation passed into law in British Columbia in 2019.