Reduction in benefit payments requires thorough explanations

The life insurance industry intends to significantly reduce medical insurance coverage that pays for hospitalization benefits for novel coronavirus patients. It is vital to provide thorough explanations to avoid causing confusion.

Nippon Life Insurance Co., Dai-ichi Life Insurance Co. and other life insurance companies currently pay hospitalization benefits to coronavirus patients, regardless of whether they are hospitalized.

From Sept. 26, policyholders who can receive the benefits will be limited to people who are 65 or older, patients who require hospitalization, those who need medication and other medical treatment, and pregnant women.

The government will simplify from Sept. 26 a nationwide system across the board under which medical institutions report information on coronavirus cases to public health centers, including the names and birth dates of all infected people. Taking this occasion, life insurance firms have decided to limit the benefit payments to those at high risk of severe illness.

This move will reduce the number of people eligible for the benefits by as much as about 70%, according to the industry. It is unusual for there to be such drastic rule changes regarding insurance benefits. It will be important for each life insurance company to thoroughly inform policyholders of the reasons and circumstances, and seek their understanding.

Typically, medical insurance policy clauses stipulate that hospitalization benefits are provided “when medical treatment under the supervision of a doctor at a hospital is required.” In principle, the patient must be hospitalized to receive the benefits.

But in the spring of 2020, a number of patients were unable to be hospitalized even though they were infected with the virus. At the request of the central government, the insurance industry adopted a flexible interpretation of medical insurance policy clauses and has, under special measures, paid benefits in cases involving people who recuperated at home as their conditions were deemed equivalent to being hospitalized.

The number of infected people increased explosively in the seventh wave of infections, while the percentage of severely ill people declined.

The total amount of benefits paid out has skyrocketed from about ¥58 billion in 2021 to about ¥270 billion at the end of July this year. More than 90% of those cases involved policyholders whose cases were deemed equivalent to hospitalization, according to the industry. As a result, the business performance of smaller insurance firms has been squeezed in some cases.

The industry likely judged that it would be difficult to continue taking such special measures any longer, but the sudden change in the rule may cause confusion among policyholders. Life insurance companies and the Financial Services Agency, which oversees these companies, need to examine whether their forecasts were too optimistic.

There is also concern that around Sept. 26, when the rule changes, confusion could arise over whether people will be eligible for the benefit payments. A system to offer consultations and answer questions must be put in place.

Meanwhile, it is believed that a number of policyholders were also engaging in behavior that was not in line with the original intent of the insurance, such as taking out policies immediately after a family member was infected with the virus.

Whether the design of the system regarding contract terms and conditions was appropriate is also questionable. The insurance industry and the FSA must take a fresh look at the issues that need to be addressed in preparation for the next infectious disease epidemic.

(From The Yomiuri Shimbun, Sept. 15, 2022)