Living benefit riders to life insurance policies: Pricing considerations and strategy
Adding benefit riders to policies provides meaningful coverage for those who need it, and carriers usually can do so at a relatively low cost.
We are in the midst of a paradigm shift in which cubicles, boardrooms, and copy machines are being replaced by Zoom meetings, flexible hours, and significant amounts of work performed in the comfort of pajamas. Out of social distancing necessity, corporate America has transitioned to remote work during the COVID-19 pandemic. While some have speculated about when the office routine will return to the pre-pandemic normal, the reality is that many companies will be permanently altered by the systemic shock of this year. Forced to work from home, many employees have found that they enjoy their home offices and are saving money on gas, parking, and mass transit costs. A sizable portion of employees prefers the convenience of commuting to another room rather than sitting for hours in traffic. Likewise, employers have the potential to save money on commercial real estate expenses. The past few months have shown that a remote workforce is feasible without sacrificing productivity. In the insurance industry, many coverages are based on the assumption that work will be performed in a centralized in-person location. The pandemic has highlighted that many employment practices were outdated before this crisis and the changes now underway will have a profound impact on insurance in the workplace. The insurance industry must adapt in order to function in a post-pandemic world and navigate the “new normal” of a work-from-home economy.
The first line of business that comes to mind when considering a transformed workplace is workers’ compensation (workers’ comp). Originally, the assumption underlying workers’ comp was that medical expenses and lost wages would be covered for accidents occurring at the factory, mine, railroad, etc., and in return, as a compromise, employees would not sue their employers. Modern coverage still has its roots in those early policies, but the situation is clearly complicated when the workplace and the home are one and the same. Because workers’ comp is regulated at the state level, the definitions of a work injury and covered claim can vary by state. In Pennsylvania, the Commonwealth Court has stated that accidents are covered by workers’ comp if an employee “is injured while actually engaged in the furtherance of the employer’s business or affairs.”1 However, it is not obvious which types of home accidents would be covered under the law. Should a person who falls out of their chair while working from home be covered by workers’ comp? What if they trip down the stairs during lunch? Employers will face challenges determining whether an injury was work-related because investigating claims that occur at home will be much more difficult than when they happened at an in-person business.
Some claims similar to the examples above have been adjudicated and provide guidance. In Verizon Pa. v. WCAB (Alston), 900 A.2d 440 (Pa. Cmwlth. 2006), a woman who was working from home fell on the stairs while returning to her office from getting a drink. The court determined that she was eligible for workers’ comp benefits because “she only deviated briefly from her work activities at the time of her injury.”2 While the court ruled in her favor in this case, the same is not true for every claim that has occurred in a remote work setting. The line between a work injury and a home injury has been blurred and laws will have to be updated to clarify exactly what types of claims should be covered. In addition, the potential for fraudulent claims is increased because everyday accidents could be reported as work incidents. The work-from-home accidents are likely unwitnessed events that would be difficult for an employer to prove did not take place as the employee describes.3 Workers’ comp insurers must be vigilant in their fraud detection and update their policy language to eliminate the gray area in order to continue to thrive while covering remote workers.
Another transformation is occurring in the types of technology we use to do our jobs from home. While information technology (IT) departments have been scrambling to keep up with the rapid changes, cyber insurance will also have to evolve in order to keep pace. Many companies have Bring Your Own Device (BYOD) policies in place, which allow employees to use their own laptops, smartphones, and tablets while working remotely. The risk of phishing scams and other cyberattacks is heightened when hardware is not uniform across an organization. Additionally, when remote employees emerge from quarantine to work in coffee shops and restaurants, public WiFi networks, many of which are unsecured, create additional opportunities for cybercriminals to exploit.4 The data from the COVID-19 lockdown support an increase in cyber risk. According to a recent FBI report, digital crime per day increased by 75% from the start of stay-at-home restrictions to the end of June.5 Cyber insurance should play a vital role in reducing cybercrime by incentivizing companies to put in place responsible cyber risk management policies.
One group of professionals that has been particularly appreciated during the current pandemic is the medical field. The manner in which doctors provide medical care has also been fundamentally altered due to social distancing and safety measures taken to prevent the spread of disease. Even before COVID-19, telemedicine was poised for significant growth due to the convenience of patients getting treatment from home rather than waiting in overcrowded doctors’ offices.6 Out of necessity, this trend has dramatically accelerated over the past year. Fair Health analyzed data from more than 32 billion medical and dental insurance claim records and found that telehealth claim lines (i.e., claim codes on the insurance claim records pertaining to telehealth procedures) increased by over 4000% between June 2019 and June 2020.7
Data from https://www.fairhealth.org/states-by-the-numbers/telehealth
As the way doctors treat patients evolves, so too must change to their medical professional liability (MPL) coverage. Are medical professionals more likely to make a critical mistake over a video call than they would be in person? Currently, it is unclear whether the risk of medical malpractice claims will increase or decrease in a remote environment. In some cases, physicians may be diagnosing conditions via telehealth that would have required a physical appointment in the past, which could result in increased exposure from an MPL perspective.8 Already, insurers are creating policies specifically for telemedicine professional liability, and the abundance of data will allow this coverage to be priced appropriately. Another issue could arise with the venue of medical malpractice court cases. If a doctor in Pennsylvania remotely treats a patient in New Jersey and a claim arises, in which state should the claim be brought to trial? The law must be clear on this matter and insurers should be vigilant because verdicts can vary significantly by state.
By its very nature, insurance is always interested in looking ahead to the future. Although the COVID-19 pandemic has brought many hardships, one silver lining may be that employees and companies recognized the benefits in working from home. For some, the pros may outweigh the cons and their remote arrangements will become permanent. As an industry, insurers should be planning how to react to this not-so-distant future. There may be fewer cars on the road, disrupting auto insurance, and business as usual may be interrupted, but we should view this situation not as a setback but as an opportunity to thrive. When we look back on 2020, it will be viewed as a turning point toward a more flexible work-from-home economy, and hopefully as an example of the resiliency and ingenuity of the insurance industry.
1Wickert, G.L. (April 8, 2020). When employees work from home: Work comp subrogation and the remote employee. Claims Journal. Retrieved September 29, 2020, from https://www.claimsjournal.com/columns/road-to-recovery/2020/04/08/296448.htm.
2Weinstock, Ira H. (January 15, 2014). Hurt at Home—Is an Employee Eligible for PA Worker Comp. Retrieved September 29, 2020, from https://www.paworkerscompensation.law/home-injury-and-workers-comp/.
3Hagmueller, G. (May 8, 2020). Viewpoint: How COVID-19 and recession are upending workers’ comp. Claims Journal. Retrieved September 29. 2020, from https://www.claimsjournal.com/news/national/2020/05/08/296961.htm.
4Norton, J. (September 17, 2020). Businesses need to rethink cyber risks for work-from-home employees. Insurance Journal. Retrieved September 29, 2020, from https://www.insurancejournal.com/news/national/2020/09/17/582888.htm
5The Economist (August 17, 2020). During the pandemic a digital crimewave has flooded the internet. Retrieved September 29, 2020, from https://www.economist.com/international/2020/08/17/during-the-pandemic-a-digital-crimewave-has-flooded-the-internet.
6JD Supra (June 19, 2020). Liability in the Telehealth Era. Retrieved September 29, 2020, from https://www.jdsupra.com/legalnews/liability-in-the-telehealth-era-65973/.
7Pifer, R. (September 3, 2020). Telehealth claims dipped second month in a row in June: Fair Health. Retrieved September 29, 2020, from https://www.healthcaredive.com/news/telehealth-claims-dipped-second-month-in-a-row-in-june-fair-health/584656/.
8Forray, S.J. & Koca, S.J. (April 22, 2020). A Well-Deserved Thank You to Healthcare Providers: Considerations in Premium Refunds for Medical Professional Liability Coverage Stemming From the Novel Coronavirus Pandemic. Milliman. Retrieved September 29, 2020, from https://www.milliman.com/en/insight/A-well-deserved-thank-you-to-healthcare-providers.