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Regulators Question Travel Underwriting

By Jim Connolly

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The issue of whether insurers have a right to not to insure applicants who may travel to places deemed unsafe was aired during a hearing at the fall meeting here of the National Association of Insurance Commissioners, Kansas City, Mo.

The issue is of keen interest to Rep. Debbie Wasserman Schultz, D-Fla., who was turned down for additional insurance by American International Group’s American General unit in Houston after questions about her travel plans. The congresswoman said she would be traveling in her congressional capacity to Poland. Wasserman Schultz was then asked during the application process if she would be traveling to any other foreign country in the future. She replied that while she had no plans at present, in the future she might travel to Israel. On that basis, the company turned down her application in a March 25, 2005, letter.

Travel underwriting was examined in several different contexts: the theoretical arguments for using it; the public policy implications of its use; and the practical effects of employing it when a company decides to approve a policy.

The hearing of the Travel To Foreign Countries (A) Working Group started with a taped message from Wasserman Schultz, who called travel underwriting “a despicable practice.” She said there was no apparent reason for the practice, citing 2004 statistics which showed that 350,000 Americans had traveled to Israel and none had died.

“Freedom to travel is fundamental to Americans,” she continued. Wasserman Schultz urged state insurance regulators at the NAIC to follow the lead of Florida’s legislature and insurance department and work toward model regulation that would prevent travel underwriting that had no actuarial basis.

Actuaries detailed how they view travel underwriting. Arnold Dicke, representing the American Academy of Actuaries, Washington, explained how risk characteristics are observed and can be associated with expected outcomes to create risk classifications. For instance, he said that instances of high blood pressure can be observed and possibly tied to early death.

The longer the time one spends in a high risk region of the world, the more likely it becomes that there could be a claim, he continued. If premiums don’t reflect that increased risk, Dicke said, the more conceivable it becomes that other policyholders could end up subsidizing claims for those contracts. Dicke said data has to be both credible and relevant.

But North Dakota Insurance Commissioner Jim Poolman, chair of the Life & Annuities “A” committee, asked if companies are actually looking for data.

Dicke responded that experience could be based on actual data or reasonably anticipated data if data collection was insufficient because a particular region was in upheaval.

Florida Commissioner of Insurance Regulation Kevin McCarty noted the difference between building bridges in Baghdad for two years and traveling in Israel for a week. There needs to be transparency around why a company is using travel underwriting, he continued.

“Companies should not be able to reject an applicant if there are not fair and reliable statistics,” said Karen Aroesty, regional director of the Missouri/Southern Illinois chapter of the Anti-Defamation League. Statistics have not been presented to show that travel to Israel is more dangerous than travel to cities in the U.S., she added.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, said the practice is not justified actuarially, is contrary to public policy and has not been proven to have an impact on the solvency of insurers.

Today, according to Birnbaum, insurers have access to data that makes it unreasonable to use travel underwriting without statistics to justify the practice. He asked if there was a ban on traveling to U.S. cities with high murder rates such as Detroit or Washington, D.C.

But Robbie Meyer, a representative for the American Council of Life Insurers, Washington, explained that without the ability to consider travel underwriting, it might hamper the ability to fairly treat existing customers. She recommended that regulators use the Unfair Trade Practices Act to address unfair denial of coverage rather than use market conduct examinations.

But McCarty countered by saying that when regulators sought to use the act, companies had argued that there was no authority to specifically address this point.

Susan Voss, Iowa insurance commissioner, asked whether a policyholder who said in an application that he did not know if he would be traveling in the future and ended up traveling to a region flagged by insurers would have his contract rescinded. Meyers responded that in order to rescind a contract, a company would have to establish a material misrepresentation, which would be difficult.

Illinois Director Michael McRath wanted to know if the ACLI had surveyed companies on whether there would be a solvency problem if they could not use travel underwriting. He also questioned the actual impact on companies based on data cited by the ACLI during testimony. ACLI consultant Joe Huguenard cited U.S. government statistics that indicated in 2005, Americans made 28 million trips overseas and there were 791 non-natural deaths of Americans overseas.

When asked if the ACLI supported the current Florida law that was recently put in place, Meyers said that it did with one “tweak.” ACLI supports a standard that would hold travel underwriting to sound actuarial principles or actual or reasonably anticipated experience. Currently, she said, Florida’s law requires sound actuarial principles and actuarial or reasonably anticipated experience.