Are unvaccinated people paying more for insurance?

An article published in The Lancet medical journal in June 2022 asserts, on the basis of mathematical modelling, that vaccines may have prevented 19.8 million deaths from Covid-19 in 185 countries between December 2020 and December 2021.

Because vaccination has been found to reduce the risk of severe illness and death from Covid-19, insurers have considered increasing the insurance premiums of unvaccinated people.

This article examines how insurers approach vaccination and how their risk-based approach could affect your finances.

Tip: A personal loan can tide you over in a medical emergency. Find out more here.

The pandemic is not over yet

The Covid-19 death rate was lower during the fourth wave than in previous waves, but death claims rates have not yet returned to pre-pandemic levels, according to Hennie de Villiers, deputy chair of the ASISA Life and Risk Board Committee.

“Not every death for which claims were submitted has been caused by Covid-19, but there is no doubt that the pandemic has been responsible for many of the additional deaths, either because people contracted the virus, or were reluctant or unable to seek medical attention for other serious conditions,” he points out.

De Villiers says only around 50% of the adult population in South Africa has been vaccinated and future variants may emerge as more severe.

“There is overwhelming evidence that the risk of severe illness or death is significantly lower in those who are fully vaccinated,” he says. “A consistently higher claims experience would leave insurers with little choice but to adjust premiums in line with the higher risk presented by someone who is not vaccinated, and therefore more likely to die from Covid-19.”

Higher premiums for unvaccinated people are already being implemented in the group life insurance space, De Villiers says, and employers that have implemented mandatory vaccination policies are starting to benefit from preferential premium rates.

“Life insurers expect the relatively higher rate of death claims to continue until South Africans start embracing vaccinations as the new normal,” he says.

How insurers are responding

The proposal that unvaccinated people should pay a higher premium is based on the predicted likelihood that they will have to claim due to Covid-19.

Nic Smit, acting chief product and pricing actuary at Bidvest, says that Bidvest Life introduced loadings for unvaccinated lives in January 2022, but adjusted these loadings downwards in mid-March after the more recent waves showed a lower risk of serious illness and death.

New applicants for individual policies must provide proof of vaccination if they are 61 or older.

“If these clients are unvaccinated, a loading of between 15% and 75% will be applied, depending on age and BMI or health status,” says Smit. The maximum entry age for life lump sum, life income and critical illness cover is restricted to 66 years for unvaccinated applicants.

Partially vaccinated clients are treated as though they are fully vaccinated, assuming they will continue to receive vaccination boosters.

John Kotze, head of product and protection solutions at Old Mutual, says that the company introduced loadings for unvaccinated lives above a certain age on underwritten life and funeral business in 2021, but like Bidvest, started adjusting their approach as different variants proved to be less severe.

“Currently, only unvaccinated lives over the age of 60 and with co-morbidities receive new business loadings on underwritten life and funeral business,” he says.

Petrie Marx, product actuary at Sanlam Individual Life, says that Sanlam follows a risk-based approach when it comes to new applicants. “Certain unvaccinated lives with co-morbidities who face a higher Covid-19 risk may be declined or charged some additional temporary loadings, until proof of vaccination is provided,” she says.

Insurers are obliged to charge risk premiums that are financially sound, but also fair in how they distinguish between clients in different risk categories. Any such differentiations must be backed up by statistical or medical evidence.

“When the expected claims outcome is likely to be different, it wouldn’t be fair to all clients, or make business sense, to cross-subsidise the additional risk and charge all applicants the same,” Marx points out. “On the other hand, should the additional risks diminish, one may stop charging different premiums.

“Additional deaths from Covid-19 have come down, but the illness has not disappeared completely. With this in mind, it is still too early to tell what the long-term impact might be, for example, should new, more dangerous, variants emerge, especially for clients in older age groups, or with certain co-morbidities.”

Retain your insurance cover

Although the tough economic climate has led to some policyholders cancelling their life insurance policies, De Villiers says it is better to find alternative ways to save money.

“Even if the pandemic has affected you financially, hold on to your policies as best you can,” he says.

“The best time to put sufficient cover in place to help your family survive financially in a time of need, is while you are healthy and able to qualify for cover at affordable rates and without exclusions. If you already have cover, it is of utmost importance that you continue paying your premiums so that you remain covered. If you let your policy lapse, you may not be able to secure cover at the same rates – or at all – when you apply again.”

Tip: Before cancelling a life insurance policy due to financial difficulties, consider whether you can reduce any debt you may have, through debt consolidation. Find out more here.